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"

href="http://www.finextra.com/news/fullstory.aspx?newsitemid=22042"

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?

Her

apparent endorsement of the

href="http://www.finextra.com/news/fullstory.aspx?newsitemid=22026"

target="_blank">NYSE technologies European consolidated tape

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?"

href="http://fragmentation.fidessa.com/2010/11/23/whos-going-to-consolidate-all-the-consolidated-tapes-23-november-2010/"

target="_blank">a bunch of different proprietary, competing

initiatives. How is that going to help improve

transparency?

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

Brussels.