The U.S Securities and Exchange Commission (SEC) has today voted to propose new rules to enhance operational transparency and regulatory oversight of alternative trading systems that trade stocks listed on a national securities exchange, including the infamous “dark pools.”
The new rules would require an exchange to file detailed disclosures about its operations and the activities of its broker-dealer operator and its affiliates. These disclosures would include information regarding trading by the broker-dealer operator and its affiliates on the trading system, the types of orders and market data used on the system, and its execution and priority procedures.
In addition, the proposal would make disclosures publicly available on the SEC’s website, which could allow market participants to evaluate whether to do business with an alternative trading system. They will be better informed when evaluating order handling decisions made by their broker and make more informed decisions regarding its order routing.
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The detailed information would provide important insights regarding potential conflicts of interest when a broker-dealer operator’s business interests compete with the interests of market participants that access its trading system.
The new rules would also provide a process for the SEC to declare filings effective or ineffective, as well as provide a process to review amendments. The SEC says that the proposed processes would enhance its ongoing oversight and ability to monitor this segment of the equity market.
“Investors and other market participants need more and better information about how alternative trading systems work,” said SEC Chair Mary Jo White. “The proposed changes would represent a critical step forward in delivering greater transparency to investors and enhancing equity market structure.”