Dark Pools in Equity Trading: Policy Concerns and Recent Developments [September 26, 2014] [open pdf - 310KB]
"The term 'dark pools' generally refers to electronic stock trading platforms in which pre-trade bids and offers are not published and price information about the trade is only made public after the trade has been executed. This differs from trading in so-called 'lit' venues, such as traditional stock exchanges, which provide pre-trade bids and offers publicly into the consolidated quote stream widely used to price stocks. […] This report examines the confluence of factors that led to the rise of dark pools; the potential benefits and costs of such trading; some regulatory and congressional concerns over dark pools; recent regulatory developments by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), which oversees broker-dealers; and some recent lawsuits and enforcement actions garnering significant media attention. These include a 2014 civil suit filed by New York Attorney General Eric Schneiderman against the securities firm Barclays for its dark pool operations. A central allegation was that in marketing materials for prospective investors, Barclays misrepresented the extent and nature of the high-frequency trading in its pool. The report also examines steps regulators in Canada and Australia have taken to address any reduction in price transparency from dark pool trading."
CRS Report for Congress, R43739
Federation of American Scientists: http://www.fas.org/sgp/crs/index.html