The increasing use of dark pools, or venues where stock trades are hidden from public view, is a growing concern for regulators, the Chairman of the U.S. Securities and Exchange Commission said on Thursday.
While there were legitimate reasons for market participants to maintain anonymity and engage in trading without moving the market, dark pools may lower the quality of publicly available information, Mary Schapiro said in a speech at the IOSCO Technical Committee Conference in the Swiss city of Basel.
The SEC is considering whether the dark pools need more light, Schapiro said.
Dark pools allow traders, especially of large blocks of stock, to hide their intentions and avoid moving share prices. They have gained traction over the last decade as the average size of trades dramatically decreased on the transparent exchanges.
The United States has some 40 such venues, but dark pools have also grown in Europe and elsewhere.
Schapiro said some pools were not dark to all market participants but rather transmitted electronic messages to select individuals that could convey valuable information about their available liquidity.
This could lead to significant private markets that excluded public investors, she said.
Such a two-tiered market would be inconsistent with the fundamental principles of fairness and efficiency that guide U.S. market structure policy, Schapiro said.
(Reporting by Sven Egenter; editing by John Stonestreet)