Last week, for the first time ever, regulators have made dark-pool data available to the public.
Dark pools execute trades off exchanges. The move to provide trading data to investors is spurred by regulators’ recognizing that transparency is essential in promoting investor confidence in the financial markets.
The data are made available by the Financial Industry Regulatory Authority (FINRA), which now provides free access to weekly aggregated trade data at https://ats.finra.org/. Called Alternative Trading System (ATS) Transparency Data, the website shows trades by symbol or by ATS. Unlike securities information processors, ATS attributes trades to specific dark pools. FINRA is the largest independent regulator of securities firms in the U.S.
For example, in the current report for the week beginning May 12, 2014, Ubsa UBS Securities LLC reported the highest number of trades for the week (2,307,746), followed by Cros Credit Suisse Securities (USA) LLC (Cros) (2,189,977 trades), Lats Barclays Capital Inc. (1,701,372 trades), DBAX Deutsche Bank Securities Inc. (1,117,870 trades) and MLIX Merrill Lynch, Pierce, Fenner & Smith Inc. (1,099,830 trades).
Using the new website, you also can look up dark-pool trading for individual stocks or ETFs.
For example, the current report for the week beginning May 12, 2014, shows SPY (SPDR S&P 500 ETF) as trading 63,303,753 shares executed through a total of 167,005 trades. The largest number of shares (19,538,402) was executed through 33 trades by DLTA Dealerweb Inc. The second-largest number of shares (5,898,439) was executed through 20,036 trades by Cros.
At the other extreme, PDQM PDG ATS Inc. executed a single trade for 100 shares, as did LQFI Citigroup Global Markets Inc.
“Now that this information is available, investors have a window into what is really happening,” explained Steven Joachim, FINRA’s executive vice president of transparency services.
According to a June 4 Wall Street Journal report, “Dark Pools Shed Light on Their Operations,” Credit Suisse, Goldman Sachs Group and IEX Group Inc. recently disclosed how they operate. For example, Credit Suisse described Crossfinder, its dark pool, as “an anonymous matching engine available to Credit Suisse clients, internal trading desks and Credit Suisse affiliates.” It employs “anti-gaming measures” to prevent high-speed traders from taking advantage of slower investors, the document said. In a separate document, Credit Suisse said it allows high-frequency traders in its dark pool but has “developed tools, technology and processes ... to mitigate risks associated with certain types of market behavior.”
The Journal article quoted Adam Sussman of Liquidnet Holdings Inc., a dark pool that specializes in helping institutions trade large blocks of stock, as pointing out that dark pools operate differently: “Not all dark pools cater to the same investors and strategies.”
“FINRA’s commitment to transparency is bringing light to what was previously a dark area of the equity markets,” explained Joachim. “Making this information available to both the investing public and market participants provides an unprecedented view into the activity of these highly significant trading venues.”
According to FINRA’s release, “prior to FINRA making this data generally available, ATS volume has been provided primarily to professionals, based on voluntary reporting by some (but not all) ATSs, on an aggregate, monthly basis. FINRA’s collection of the data under its rule is designed to ensure that the data reported is complete and accurate, and by making the data available on a weekly, symbol-by-symbol basis, provides a new level of transparency that may be reviewed and studied by non-professional and professional traders, academics and regulators.”
How investors will use this new data will depend on the individual. Transparency is the goal.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/ comments (email@example.com).