The Financial Conduct Authority (FCA) in the UK has estimated that 3.5% of all trades in dark pools referenced prices that are considered ‘stale’.
A report on dark pools and reference prices in the UK found major dark pools in the region experience delays in receiving prices, meaning dark trades occur at stale prices.
A price is considered to be stale when it is two or more or milliseconds behind real-time prices, according to the report.
The FCA said it found on one of the dark pools it analysed, dark trades executed at stale prices reached 11.5% on peak days.
The delays are largely due to technical issues as data flows from one point to another, but it also related to fairness, with best execution considerations heavily relying on prices.
The report concluded high frequency traders (HFTs) are the ‘winners’ of stale prices, and HFTs ‘win’ 96% of their stale price trades in dark pools.
The percentage of trades executed at stale prices is also increasing, according to the report. Though this can be linked to message traffic and volatility over the period.
The FCA concluded that costs associated to stale pricing are minimal, and “do not outweigh the useful service dark pools provide to market users by providing price improvement and reducing price impact.”