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Nasdaq launches SMARTS Surveillance for Dark Pools

First Published 8th October 2015

Nasdaq's SMARTS launches trade surveillance monitoring for dark pools.

Rob Lang, Nasdaq

Rob Lang, Nasdaq

"Trade surveillance can no longer be limited to lit trading."

New York - Nasdaq, the provider of trade surveillance technology to marketplaces, regulators and market participants, has officially launched new trade surveillance monitoring capabilities for dark trading activity alongside its SMARTS Trade Surveillance platform.

"Trade surveillance can no longer be limited to lit trading," said Rob Lang, Vice President, Business and Product Development, Risk & Surveillance Solutions, Nasdaq. "Regulators globally are taking a more active role in monitoring and enforcing greater transparency in the trading of listed instruments away from lit venues generally, and of trading behaviors within dark pools specifically. We see the need to address these new demands and support dark venue operators and those executing in the dark to boost their surveillance capabilities and help them stay in compliance."

The new module, SMARTS Surveillance for Dark Pools, helps Multilateral Trading Facilities (MTF), Alternative Trading Systems (ATS), Crossing Networks, and market participants internalizing order flow or trading in external dark venues to monitor for potentially abusive behavior taking place in the dark. Jurisdictions such as Hong Kong, Australia and Europe, amongst others, have already passed regulatory mandates in relation to dark trading. SMARTS Surveillance for Dark Pools will better position dark venue operators and participants to more effectively meet requirements and demonstrate a proactive approach to surveillance of dark trading.

  • For dark venue operators, like MTFs and ATSs, these capabilities will enable them to monitor trading across all of their clients, like an exchange, to ensure market integrity. Using SMARTS, venue operators that also own broker-dealers would also be able to demonstrate that internal desks are not trading ahead of client orders on knowledge, further improving the integrity of the pool.
  • For Crossing Networks or Systemic Internalization, the solution helps demonstrate system integrity in that the liquidity pool operates as advertised, in addition to helping identify potentially malicious behavior that is hidden in the network or any mispricing or fair pricing issues for trades that executed internally.
  • For executing brokers, SMARTS Surveillance for Dark Pools enables firms the same cross-market, cross-asset monitoring and alerting capabilities as have proven successful in lit markets, with the ability to view dark executions within the full context of all of the markets traded.

SMARTS Surveillance for Dark Pools covers market manipulation and abuse behaviors from price manipulation to insider trading, front running, and cross-market (lit vs dark) manipulation, amongst others.

"In order to ensure integrity and compliance, dark venue operators and participants internalizing or crossing order flow, or externally participating in dark venues, need to have processes and systems in place to monitor activity for manipulative trading," said Michael O'Brien, head of Product Development, SMARTS Trade Surveillance. "Not only does this support regulatory compliance needs, it is simply good business practice, particularly in a quickly evolving marketplace like dark pools."