Dark pools have become “profit engines” for their owners in recent years, Flatley said. “Brokers must make a call. Do I invest in having more compliance and monitoring of the systems or do I just not hit those thresholds?”
Those with more than 1 percent of total U.S. equities volume in February are owned by Credit Suisse Group AG, Goldman Sachs Group Inc., Barclays Plc, and UBS AG, according to a March 25 report from Rosenblatt. Knight Capital Group Inc.’s Knight Link, often called a dark pool, isn’t a registered ATS. It had 1.4 percent of total volume, the data show.
Fifteen U.S. pools tracked by Rosenblatt had more than 0.25 percent of volume traded in February. The company doesn’t compile data on the value traded by those venues.
Dan Mathisson, head of U.S. equity trading for Credit Suisse, declined to comment. About 123 million shares or 1.9 percent of U.S. equities volume changed hands in the Zurich- based bank’s Crossfinder pool in February, Rosenblatt said.
Bids Trading LP, which operates a dark pool, plans to submit a comment letter to the SEC, according to New York-based Chief Executive Officer Tim Mahoney. He said he’s not yet sure whether Bids will be subject to Reg SCI and declined to comment before the letter.
“It’s possible that some dark pools as they become subject to Reg SCI are going to have to clean up or amend their Form ATSs to make sure that what’s described actually reflects the way the dark pools works,” Schack said about a document they must submit to the SEC when they make material changes. “It will give the SEC better information about them than they have today, which would be good.”
Brokers including those running dark pools are already subject to a so-called market-access rule introduced in 2011 to reduce the risk of trading disruptions and improper activity. While the requirements overlap with some mandates in Reg SCI related to the integrity of technology systems, the SEC may push compliance with the access rule toward what’s demanded under Reg SCI, Flatley said.
Underscoring the breadth of the proposed rule, the SEC asked the public for comment on more than 850 questions. It asked whether NYSE should be allowed to offer firms a backup plan to trade on the exchange that is significantly different from its normal mode of operations. Questions ranged from whether numerical thresholds are appropriate for specific types of trading systems to whether the SEC should supply more precise requirements on trading software development.
The SEC also wants to know if the rule should cover security-based swap data repositories and execution facilities under the SEC’s jurisdiction as the agency writes rules to move more over-the-counter derivatives trades into clearinghouses.
“This is part of getting the whole ecosystem verified,” Flatley said of Reg SCI. “There will be a lot of work but it’s the right thing to do. If people want to get off the headlines and stop explaining why things went bad, they’ll have to have standards in the industry. It’s significant, but it’s time.”