FINRA is boosting its watch over dark pools and high-speed trading, especially trading across exchanges.
This is in addition to the effort to mandate brokers to disclose to clients the bonuses they receive for moving to another firm.
The concern is that traders are placing high-speed trade orders on exchanges and in dark pools simultaneously to manipulate prices in their favor.
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Dark pools execute trades based on internally printed prices at exchanges, which act as a sort of intermediary.
Fifteen percent of all trades now occur in dark pools. In 2007, that number was 3%. Overall, over 30% of stock trades occur away from exchanges.
The FINRA move is part of a global initiative to keep a closer eye on high-speed computer trading. The SEC and FINRA are also cobbling together a consolidated audit trail that will track
orders on stock and options exchanges.
But it will be years before that system is in place.
Industry experts say regulators are lagging behind technological advances in computer trading.
It’s difficult for regulators to see what happens in dark pool trading because the trades are not
Only executed trades are sent to the broader markets.
The practice invites trading prohibitions such as front-running, which gives an advantage
to institutional traders over individual investors from a price execution perspective.