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Shining Light on new Dark Pool Regulations

Published in Automated Trader Magazine Issue 40 Q3 2016

Dark pools used to be places for large block trades where institutions could transact significant deals away from prying eyes in order to prevent information leakage. However, the average trade size has come down to rival that of lit venues and regulations are adapting to the fact that dark pools are starting to look like just another exchange.

Dark pools are private forums essentially used for the trading of cash equities. They have existed since at least 1980 and were originally intended to allow institutional investors to execute large trades with reduced market impact. Over time, as pictured overleaf, the average trade size in dark pools has shrunk drastically, meaning that they now compete directly with traditional exchanges. Some authors estimate that off-exchange trading now accounts for as much as 40-50% of total cash equity trading volume, with around 9-12% trading in dark pools. The increased proportion of equity trading occurring away from traditional exchanges combined with political pressure on regulators to more closely regulate OTC markets following the global financial crisis of 2007-2008 means that dark pools have come under increasing scrutiny.


Gabriel Jaccard, MLaw (University of Zurich) is passionate about the legal challenges brought by new technologies and in particular those surrounding FinTech. He is the founder of the community UpLaw (, which aims to share legal works in open access format amongst legal professionals.


From a regulatory point of view, dark pools are not expressly defined by existing law. As a consequence, without any consensus on a precise definition eitaher from a legal or from an economic point of view, the qualification of a trading venue as a 'dark pool' is often vague. aFurthermore, the qualification of a venue as a dark pool may depend upon the specificities of the respective national 'Market Infrastructure' regime.

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