Brussels spouts! – 26 November 2010
First Published Friday, 26th November 2010 05:03 pm from Fidessa : Steve Grob
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
It used to be okay when Brussels' euro
meddling was limited to the banalities of life, but the title="MEP says all trades will be encouraged into lit markets"
target="_blank">remarks attributed to Kay Swinburne
(Conservative MEP for Wales) yesterday seem to show a dangerous
misunderstanding of how European financial markets work. The
concept that dark pools are "always bad" is
naive on a number of levels. Firstly, the term 'dark
pools' covers a whole host of different non-lit order
matching services. These range from buy-side crossing networks,
through discretionary broker services, to dark books operated by
exchanges and MTFs. These different pools offer a range of
different services to professional investors so that they can
minimise market impact and achieve the best possible outcome for
their orders. Secondly, the concept of trading off-exchange
- or 'in the dark' - has
existed for as long as the exchanges themselves. Many of the
broker dark pools are simply automated versions of their
traditional 'upstairs' activity that seek to
deliver on the brokers' fiduciary duty to get the best possible
outcome for their clients. For many pension and traditional
long-only funds the idea that they can, or should, trade the huge
blocks they do on lit markets is bizarre. Take Liquidnet, for
example, which prints average trade sizes that are hundreds or
thousands of times larger than trades in the same stocks on lit
markets. How does Kay think that orders of this magnitude are
going to be transacted on lit markets?
initiative is also worrying as she seems to think that
the only alternative is for the taxpayer to foot the bill for a
utility that provides this information. The real issue is simply
about agreeing a set of neutral standards as to how the tape is
compiled and reported to, and then the market can do the rest.
Without these standards, we will just end up with title="Who's going to consolidate all the consolidated tapes?"
target="_blank">a bunch of different proprietary, competing
initiatives. How is that going to help improve
I just hope that either her
remarks have been taken out of context, or she is just trying to
provoke the debate on these issues. If not, then we have every
reason to be worried about what else may come out of