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October 1, 2013

Dark Trading Deadline Looms

Wall Street executives say FINRA's proposed rule governing off-board trading is coming, but details need to be worked out

By By John D'Antona Jr.

The Financial Industry Regulatory Authority is likely to publish a draft of a rule proposal requiring dark pools and internalizers to report their trading volume later this month or in November.

Once a draft is put out and discussed, a formal rule proposal will be sent to the Securities and Exchange Commission, presumably late this year, with a comment period to follow, likely stretching into 2014. Full approval and implementation could happen during the first half of next year.

The chances for its approval next year are high, said Christopher Nagy, head of consultancy KOR Trading, and other industry execs. [IMGCAp(1)]

Chris Nagy, KOR Trading

"This regulation will get passed," Nagy said. "The feeling of some operators is this type of mandate to report is OK, but the frequency of said reports needs to be sorted out first."

The regulator first announced its plans to promulgate a reporting rule in July.

Driving the idea for such a rule are complaints by exchanges that too much trading is taking place off-board in dark pools and brokers internalization engines. Such a disclosure rule is considered a positive first step in achieving an understanding of the extent of dark pool trading.

FINRA spokesman George Smaragdis told Traders Magazine in an email that the regulator expects to file the proposals with the SEC "in the near future." He provided no further comment.

KOR's Nagy, who has experience in such matters from his days as managing director for order routing and market data strategy and co-head of government relations at TD Ameritrade, said that Finra was currently working with the broker-dealers that run their own dark pools, other alternative trading system operators and the buyside to come up with a reporting system all could work with.

Dan Mathisson, head of equity trading at Credit Suisse, who said he had not seen any proposal yet, agreed with Nagy that a rule governing dark pool volume reporting would likely pass. He told that he supports the idea of a Finra proposal despite not seeing all the details just yet and that a date of early 2014 for a final rule was likely.

Credit Suisse was one of several dark pool operators that self-reported its volumes but subsequently stopped in April due to frustration concerning the lack of uniform reporting criteria among self-reporters, according to Mathisson.


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