EU to Shine Light on Dark Pools

The European Commission proposed a new slate of transparency requirements on dark pools to reduce threats to financial stability. The EU measures are part of an overhaul of the sweeping Markets in Financial Instruments Directive, or Mifid, that was enacted in November 2007.

"The world has changed," Michel Barnier, the EU's financial services chief, told reporters. The EU needs rules that lead "to greater market transparency and efficiency."

Dark pools are under greater scrutiny by regulators in both the US and EU due to concerns that their lack of transparency increases price volatility. According to Bloomberg, the U.S. Securities and Exchange Commission proposed last year that dark pools must publicly report some bids once they handle 0.25 percent of a stock's average daily volume.

"We want to have transparency in the dark pools," Barnier told reporters at a briefing.

The commission may require "organized trading" to be subject to a set of minimum requirements, including disclosure of the types of trades that can be executed, and who is allowed to participate in the dealings. Waivers that allow investors not to disclose pre- trade information on regulated exchanges should be "subject to further clarification and in some cases restrictions," the commission suggested.

Officials from NYSE Euronext and Nasdaq OMC Group argue that unrestricted trading outside exchanges may hurt the ability of markets to gather enough buy and sell demand to produce fair prices. Brokers such as Goldman Sachs and ICAP operate dark pools for their clients, as do European exchanges NYSE Euronext and Deutsche Boerse.

The commission is accepting comments on its plans until February 2011. Any final proposals would have to be approved by national governments and the European Parliament to become law. Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio