Wall Street regulator
unveils proposals for dark pools, bond markets
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[September 20, 2014]
By Sarah N. Lynch
WASHINGTON (Reuters) -
Wall Street's self-funded regulator unveiled a list of
proposals on Friday to bolster rules governing
alternative trading platforms like "dark pools,"
computerized high-speed trading, and price transparency
in the corporate bond market.
The list, approved by the governing board of the Financial Industry
Regulatory Authority (FINRA), calls for new rules that would require
the people on Wall Street who develop computer algorithms to
register with regulators.
Also on the list is a plan that would force alternative trading
platforms to report more data to FINRA about buy and sell orders as
well as additional volume data for certain off-exchange trades.
In the fixed income space, FINRA also said it plans to propose
stricter rules to enhance the price transparency of the corporate
FINRA's proposals, which will now be formally drafted and issued for
public comment, come as U.S. regulators are more broadly exploring
ways to strengthen the resiliency of the equity and debt markets.
Equity markets have received particular scrutiny in recent years
after a series of major market events, including the 2010 "flash
crash" and a 2013 outage of Nasdaq OMX's <NDAQ.O> market data feed
system, damaged investor confidence.
In addition, some critics have raised concerns about the rise of
so-called dark pools, which are anonymous trading platforms that
match buyers and sellers of securities.
Trading data from dark pools is only made available afterwards,
raising questions about the impact on pricing quality.
Earlier this year, Securities and Exchange Commission Chair Mary Jo
White announced her agency is also weighing a handful of rules
targeting both dark pools and high-speed trading.
"FINRA's Board has acted in response to Chair White's call to action
in her two landmark speeches earlier this year," FINRA CEO Richard
Ketchum said, adding that the initiatives will "boost investor
FINRA has already previously taken some steps to improve dark pool
transparency. Earlier this year, it started to publicly report
aggregated trading volumes occurring in each dark pool.
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Friday's plan calls for expanding that initiative by including
trading data volume outside of the dark pool, such as trading that
is "internalized" by brokers.
The SEC, FINRA and the Municipal Securities Rulemaking Board have
only more recently turned their attention to the fixed income
One concern has been the lack of disclosure surrounding how much
bond dealers charge to cover their compensation in what some refer
to as "riskless principal transactions."
In these trades, dealers buy securities from customers and
immediately resell them to other dealers.
FINRA's proposal would target these "same day" trades and require
more disclosure on how they are priced.
In addition, FINRA also wants to write rules that require electronic
bond trading venues to provide regulators more information about the
quotes they display.
(Reporting by Sarah N. Lynch; Editing by Sandra Maler)
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