Dark pool industry hurts itself in 2012

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Traders magazine notes that dark pools issues, specifically the "policing" of these services, were among the top stories of 2012.

The industry certainly did not do itself any favors. Level ATS was fined $800,000 over charges that it shared customer account data without proper authorization and allowed the data to be used for smart order routing purposes. Pipeline was fined even more for a ruse in which it sent proprietary order flow to a related trading subsidiary, which was trying to make money on the information. This all contributed to the industry's image woes at a very sensitive time.

I've been suggesting for some time now that market structure might be a big regulatory concern in the near-future. It seemed at times last year like the SEC was going slow on a number of issues, which is entirely understandable given the complexity of the issues. But at some point, given all the controversy, regulators will be forced to engage, and addressing the dark vs. lit conundrum will likely be high on the list.

I think brokers that run these services would be wise to continue with their efforts to underscore their integrity and benefits to the entire market. No one wants to be beholden to just a few execution venues, and many individuals benefit via internalized dark pools and when mutual funds use dark pools for various trades. It will be interesting to see if the SEC takes up the issue this year.

For more:
- here's the article

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