Dark Pools grow as Wall Street eyes regulation

IT needs to make sure that all unlisted trades are free and clear.
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Trading in so-called dark pools - equity trading venues that do not publicly display orders - rose to 33 percent of total U.S. equity volume last year despite decreasing volumes on open exchanges. As industry and governmental regulators vow more stringent oversight, the IT teams inside these investment firms and brokerages have their work cut out for them.

U.S. regulators have declared they are stretching their oversight to include the opaque trading vehicles, which many have blamed for the declining trading volumes seen in 2012.

These non-display and over-the-counter trades rose to 33 percent of total U.S. equity volumes in 2012, according to Rosenblatt Securities, which is up from 30 percent the year before. That  number has risen 50 percent during the last three years, says the CFA Institute.

"The average institutional-sized order in the U.S. is about 250,000 shares. The average execution size on the exchanges and on most of the other dark pools (excluding Liquidnet) is about 250 shares. This imbalance explains why it is so difficult for institutions to get trades executed," Liquidnet said in a research note.

The "Wild West" days of dark pools are over. Wall Street regulator FINRA has announced that it will take measures to widen its investigations to include these operations, as well as controversial HFT and wash trades.

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