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Nov 19, 2015

SEC proposes stricter disclosure rules for dark pools

More detailed info on alternative trading systems to be published on SEC website

The SEC has proposed the creation of new rules obliging dark pools and other alternative trading systems to disclose more information about how they operate and their potential conflicts of interest.

The proposal would require alternative systems that trade stocks listed on a national security exchange to provide detailed information about the activities of its broker-dealer operator and affiliates, the types of orders and market data used on the system, and its execution and priority procedures.

The information would be made available on the commission’s website to ‘allow market participants to better evaluate whether to do business with an alternative trading system, as well as to be better informed when evaluating order-handling decisions made by their broker,’ the SEC says.

Under the proposal, which unanimously passed an SEC vote, the regulator would create a process to review disclosures by alternative trading systems to declare them ‘effective or ineffective’ and track any amendments.

The commission says alternative trading systems now account for around 15 percent of the trading volume of stocks listed on a national security exchange. It adds, however, that ‘limited information is available to market participants’.

‘Investors and other market participants need more and better information about how alternative trading systems work,’ says Mary Jo White, chairman of the SEC, in a press release. ‘The proposed changes would represent a critical step forward in delivering greater transparency to investors and enhancing equity market structure.’

Information about alternative trading systems to be made public would include arrangements with affiliated trading centers, use of smart order routers or algorithms to send or receive subscriber orders, details of employees it shares with other business units, differences between services provided to subscribers and those of the broker-dealer operator, and more.

The proposal is open for public comment for 60 days before it is published in the federal register.