The purpose of this paper is to explain rule changes proposed by the Securities and Exchange Commission designed to address regulatory concerns related to “dark pools” of liquidity.
The paper explains the background and policy issues related to dark pools, discusses the SEC's amended definition of “bid” or “offer” under Regulation NMS to include “actionable indications of interest” (“actionable IOIs”), outlines a proposed reduction of the average daily trading volume threshold that triggers a public display of ATS orders from 5 percent to 0.25 percent, discusses a proposal to require an alternative trading system (“ATS”) to disclose its identity in real time on its reports of executed trades, and explains proposed size‐discovery exclusions to the changes detailed above.
The paper finds that the proposed rules represent the Commission's attempts to improve the NMS without inhibiting the use or continued technological development of trading strategies that are consistent with NMS goals.
The paper provides a clear explanation of complex market mechanisms and proposed rules by experienced financial institution and securities lawyers.
