FCA publishes Dark Pools Thematic Review

Significant differences recognised between UK and US dark pools in Thematic Review from the Financial Conduct Authority.

The UK’s Financial Conduct Authority has published details of its highly anticipated Thematic Review of dark pools.

In announcing the review, the regulator said in a statement, that the UK market has some key differences to other regions around the world, noting that the UK and US vary significantly with regards to best execution.

Andrew Bailey, chief executive of the FCA, said the review’s aim was to address concerns about the operation of dark pools in the UK.

He said: “Advances in technology have had a huge impact on equity markets which, in turn, give rise to new forms of conduct risk.

“Similar changes are underway across other products and markets so it is important for boards and senior management to read across and apply what they have already learned to rapid changes occurring elsewhere.”

The FCA said it found that users of dark pools appreciated the additional liquidity provided by these venues and recognised the fact that there is a lower risk of information leakage compared to trading in lit venues.

It stated that pre-trade price transparency was not viewed as a significant concern as loon as dark pools remain relatively small compared to lit markets.

The regulator also outlined three key areas where providers could improve, however, such as providing better detail about the design and operation of dark pools.

It also stated that investment banks should describe more precisely how their broker-crossing network interacts with other components of their electronic trading platform.