SEC ... looks at dark pools

But a concern for the SEC is how some dark pools are allowing information about trading intentions to be transmitted ahead of a transaction to a select group of investors, potentially giving these select investors beneficial market knowledge. Similar to flash orders on an exchange, which the SEC moved to ban last month, these so-called indications of interest, or IOIs, are used by "grey" pools, blurring the line between trading in dark pools and quotes on an exchange....

The wording of the SEC's proposals now defines an actionable IOI as a quote, and if a dark pool using IOIs breaks the threshold of 0.25 per cent, that price must be incorporated into the public market," says Adam Sussman, head of research at TABB Group.

Dan Mathisson, managing director of Advanced Execution Services at Credit Suisse, which runs the largest US dark pool, agrees: "Credit Suisse's CrossFinder is a true dark pool. We do not send IOIs and therefore the lower threshold will not affect us."

That interpretation could limit the scope of the SEC's proposed changes. With an average daily volume of about 140m shares, CrossFinder accounts for between 15 and 20 per cent of dark pool trading. Other large pools, such as those run by Goldman Sachs and electronic trading firm Getco, with about 120m and 100m respectively, say they do not use IOIs.

"The big question is what percentage of internalised dark pools' matched volume comes from actionable IOIs," says Mr Sussman.