SEC Proposes Additional Transparency for “Dark Pools”

by Annette L. Nazareth, for The Harvard Law School Forum at Harvard Law School, December 3, 2009.

Editor’s Note: This post is based on a Davis Polk & Wardwell LLP client memorandum by Annette L. Nazareth, member of the Financial Institutions Group at Davis Polk & Wardwell, along with Lanny A. SchwartzGerard Citera, and Robert L.D. Colby.

Taking another step in its review of equity market structure issues, on November 13, 2009, the Securities and Exchange Commission (the “SEC”) released a proposal to increase the transparency of “dark pools” of liquidity (Exchange Act Release No. 60997 (November 13, 2009)).

The term “dark pools” refers to non-exchange alternative trading systems (“ATSs”) that do not display bids or offers in the public quote stream. The SEC’s proposal to increase the transparency of dark pools is a part of its broader market structure review, including its previously announced proposal to eliminate flash orders and an anticipated concept release regarding, among other things, all forms of dark liquidity, the order flow arrangements of over-the-counter (“OTC”) market makers and undisplayed orders on exchanges…(continue reading)

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