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FLASHBACK FRIDAY: SEC Proposal: Real-Time Dark Pool Reporting Spooks Industry

Flashback Friday sponsored by Instinet

Traders Magazine Online News, January 26, 2018

John D'Antona Jr.

Its been a long coming – real-time dark pool reporting.

And the equities market and regulators are still waiting.


While sounding good at the outset and gaining populist support, real-time reporting and use of identifiers when trading in dark pools is still in the offing and spooks industry – even eight years later. The buy-side, as much as it wants increased market transparency, still wants anonymity when it trades off board so as to hide its trading strategies and intentions. And the sell-side, looking to cater to those needs, walks a delicate balance between the buy-side’s requests and regulators clamoring for more oversight and information.

Hence, the concept of more real-time or near real-time reporting and trade identifiers was borne. And as of this writing, somewhat stillborn. Trade identifiers are still not in widespread use. Currently, FINRA reports dark pool trading on a delayed two-week basis, making market oversight possible but not immediate. And the markets seem to be OK with that compromise – until the next market meltdown or crisis.

Don Ross, Chief Executive Officer at PDQ Enterprises, operator of CODA Markets, looked back eight years ago and reflected on today’s Flashback Friday story:

Don Ross, CODA Markets

“When I read that article again, (see below) eight years later, there's still a lot in it that everyone would agree with,” Ross began. “Dave Johnson's comment on the buy-side having reservations about symbol-specific, real-time reporting is still 100 percent correct, as even T+1 reporting gets push-back.”

Ultimately, Ross added, what institutional investors want will never change.

“They want trade data to show them bigger picture liquidity trends, but not provide meaningful information to HFT traders who they fear are gaming the system,” Ross said. “This is something CODA Markets is dealing with through the launch of CODA Block, our new 30-second auction facility, which we geared to the liquidity and leakage concerns of institutions.”

He explained that while CODA Block’s on-demand auctions are a new market structure, the idea of auctions for liquidity discovery is hundreds of years old, and is without question the best way to address institutional investor concerns. With a symbol-only auction, only the initiator knows size or side. If the initiator doesn’t get what they want in response to the symbol, no trade is made, and the market knows nothing about their intentions, allowing them to try again later without the market having moved. And if the initiator can make the trade, the complete trade is done in one print, eliminating the opportunity for HFT’s to gain an edge in between smaller prints.

Joe Saluzzi, partner at Themis Trading in New Jersey told Traders Magazine recently that he and his firm are in favor of adding a unique identifier for dark pool trades since the added post-trade transparency could help with the sourcing of liquidity.

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