The Australian Securities and Investments Commission will conduct reviews of broker dark pools over the next 12 months, as authorities globally clamp down on the operations of the opaque trading venues.
Dark pools are trading venues that allow large parcels of stock to be crossed by traders anonymously, away from lit sharemarkets such as the Australian Securities Exchange and Chi-X Australia.
In its market supervisory update, ASIC drew attention to allegations made by the New York Attorney-General against Barclays relating to potential fraud in connection to the marketing and operation of its dark pool.
Other firms including UBS, Credit Suisse and Deutsche Bank have also been embroiled in the controversy, receiving subpoenas from authorities to provide details about the operations of their own dark trading venues.
While ASIC was quick to point out the key differences between the domestic market and its regulatory oversight, it did caution local stockbroking firms against being complacent.
“Over the next year ASIC will be reviewing some broker dark pools with a focus on the implementation of the new rules,” it said in the update.
“Similar conduct (to that alleged of Barclays) is not expected in the Australian market owing partly to the existing regulatory framework, which has been enhanced to address potential issues with dark liquidity.
“For example, in Australia, clients using crossing systems (including dark pools) must be provided with price improvement as well as best execution.”
‘Prudent to test new rules’
Locally, stockbrokers are bound by requirements that they must seek out the best possible price for investors on the venue that offers it.
An ASIC spokesman on Wednesday said: “With new rules, it’s prudent to test how well they have been implemented, are they effective? Have they caused any unintended consequences?”
ASIC is keeping a close watch on the area. It also introduced new market integrity rules that among other things, required a market participant operating a crossing system to make information about the operation of the crossing system publicly available on a website and provide “fair treatment” to all users of that system.
Last year, ASIC undertook a detailed review of dark liquidity and high-frequency trading in Australia.
The operation of dark pools is sparking fierce debate around the world, with the Financial Times reporting that Deutsche had kicked off an internal review into its alternative trading system.
The report noted that the US probe into the dark pool at UBS started in 2012, and related to order types and disclosure practices that have since been discontinued.
The main issues regulators are grappling with centre on equitable use and access of the crossing systems or dark pools by investors, transparency of operations, and ensuring trading practices are above board.
