NYSE answers calls for dark pool clarity with reporting service

Exchange group NYSE Euronext will allow US dark pools to print trades on the FINRA/NYSE Trade Reporting Facility and display their daily activity on the nyse.com website from next month.
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Exchange group NYSE Euronext will allow US dark pools to print trades on the FINRA/NYSE Trade Reporting Facility (TRF) and display their daily activity on the nyse.com website from next month.

The service will be open to participating broker-dealers’ alternative trading systems (ATSs) and off-exchange market centres. Barclays Capital, GETCO, Goldman Sachs, Knight and UBS have volunteered to begin reporting their respective venues’ activity to the FINRA/NYSE TRF in November.

NYSE said other firms have expressed an interest in the initiative and are establishing the necessary technology to start participating in the coming weeks.

While US ATSs must already report trades to a TRF, which are exchange-run, over-the-counter trade reporting venues overseen by the Financial Industry Regulatory Authority (FINRA), the data is not separated by venue.

NYSE Euronext’s new initiative attributes trade volumes to the matching destination.

The daily dark pool trading activity published by the NYSE/FINRA TRF will be based only on trades reported to the facility, which NYSE Euronext said will address some of the problems associated with ATSs voluntary reporting of their own volume, such as counting both sides of a trade (also known as double-counting) and counting trades that are routed by, but not executed on, the venue. Trades reported to the TRF will be single-counted and matched only.

The exchange said the aim behind opening the facility to ATSs was to make volumes and individual dark pool activity more transparent and harmonise non-displayed trade reporting.

“This is an example of NYSE Euronext and the industry working together to develop a positive solution to address the lack of understanding regarding the extent and nature of ‘dark pool’ trading, which has been a concern for regulators and legislators,” said Joseph Mecane, NYSE Euronext’s executive vice president and chief administrative officer for US markets, in a statement. “We believe this will bring requisite and appropriate sunlight to alternative trading systems and other sources of off-exchange liquidity, and also help standardise the way their trading volumes are reported.”

NYSE Euronext announcement comes ahead of tomorrow’s open meeting of the US Securities Exchange Commission, in which the regulator is expected to consider recommendations to propose changes to non-displayed trading rules. The recommended proposals include changing the definition of ‘bid’ and ‘offer’ in Regulation NMS to address actionable indications of interest, amending the display obligations of ATSs and altering the joint industry plans for disseminating consolidated trade data.

There have been calls from both SEC officials and brokers to standardise dark pool trade reporting. In a speech in May, James Brigagliano, the SEC’s co-acting director, division of trading and markets, lamented the impact of double-counting and reporting of routed trades on the public confidence of the equity markets. In June Goldman Sachs’ internal ATS, SIGMA X, started reporting trades on a single-counted basis and the firm urged other pools to follow suit.

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