What the buy-side wants to know about execution venues


Amid concerns that dark pools may get even darker, the buy-side is making its views known. Bloomberg Tradebook held a conference recently and put together a list of 17 buy-side questions about order handling practices for exchange and ATS companies.

Bloomberg subsequently sent that list to the SEC, seeking answers.

Traders magazine grouped the questions into three categories:

  • Do  exchanges or ATSs have any affiliates that might be trading via the service? Ever since the Pipeline Trading scandal erupted, this has been a pressing concern. My sense is that trading venues are being more transparent on these issues.
  • What are your order handling best practices? "Specifically, the traders want to know if the venue is sharing information with a third party. This concern harkens back to the Level ATS affair in which the dark pool operator shared sensitive information with its routing partner, Citi's Lava Trading."
  • What about your order matching methodology? "Pointedly, they want to know if the venue offers certain players special advantages in the venue. This concern echoes recent criticism from the buyside that some exchange order types may give professional traders unfair advantages."

In the end, it's all about transparency. My sense is that the industry needs to grapple with this on a voluntary basis. Transparency concerns have risen to the point that regulators are taking a close look. Finra has already announced plans to seek more data. Voluntary solutions are usually preferable. But time is running out.

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