European Union securities regulators will complete their review of dark pool share trading venues by year end and may ask the bloc's executive to take speedy action, a top supervisor said on Tuesday.
Dark pools -- venues for trading shares anonymously away from a stock exchange -- are gaining market share from bourses, sparking concerns among lawmakers and regulators on both sides of the Atlantic about poor market transparency.
Our review will take place before the end of the year, Eddy Wymeersch, chairman of the Committee of European Securities Regulators (CESR) told Reuters Television.
Once we see how the situation is, we will be able to take action and probably ask the European Commission to act before the overall MiFID review (of EU trading rules), but of course that is a decision to be taken by the Commission.
The rise of dark pools has forced exchanges like the London Stock Exchange
Dark pools still represent just a fraction of overall trading volumes in Europe, just over 1 percent according to Thomson Reuters data, but are very aggressive on pricing. The LSE is fighting back by looking to launch its own dark pool.
The value of those trades jumped fourfold from January to 9.5 billion euros in October. (http://graphics.thomsonreuters.com/119/EZ_DKPL1109.gif ) (http://graphics.thomsonreuters.com/119/EZ_TDMKS1109.gif )
The EU is reviewing a set of rules known as the markets in financial instruments directive, or MiFID, introduced in November 2007 and up for review next year.
The rules tore down barriers to competition in trading by ending exchange monopolies, allowing rival venues like dark pools to flourish, but bourses say this has been at the cost of fragmenting the market and confusing investors.
The first point is fact finding, looking at exactly what is going on and what are the concerns. If the concerns are real then the question is how to act. But we are still not there yet, Wymeersch said.
If we act it will probably be part of the review of MiFID. Let's not jump to conclusions.
The U.S. Securities and Exchange Commission is also considering proposals to reform dark pools.
CESR, made up of national regulators from the 27 EU states, is due to be turned into a more powerful pan-EU regulatory body next year, with binding powers.
It is also looking at how to make the $600 trillion off-exchange traded derivatives markets less risky and apply lessons from the credit crunch, such as the collapse of Lehman Brothers bank, a major player in derivatives.
The G20 group of leading nations agreed in April to require central clearing for as many of the privately negotiated contracts as possible but Wymeersch said there were still remaining risks that needed to be tackled.
The main point is that we have adequate disclosure, probably on the pre-trade and post-trade level, and in addition to that we have adequate regulation in place dealing with market abuse, Wymeersch said.
The G20 has also agreed that trading should shift to electronic platforms or exchanges, where appropriate, and the European Union is also taking action.
The three things the regulators really care about are clearing, repositories and electronic trading. Electronic trading is the last shoe that needs to drop, ICAP's chief operating officer, Mark Yallop said.
It is unclear yet to what extent regulators will push trading onto platforms or exchanges.
The European Commission has already said it will come forward with legislative proposals in the derivatives sector in the first half of 2010, mirroring similar G20 inspired moves in the United States.
(Writing by Huw Jones; additional reporting by Jane Baird, Editing by Patrick Graham and Simon Jessop)