[ by Howard Haykin ]

Credit Suisse, which operates CrossFinder, the largest dark of orders for trading U.S. equities, has thrown a "monkey wrench" into the debate over dark pools.  The firm stopped reporting trading volume data to industry record-keepers and, for all intensive purposes, this is a permanent move - with no plans to restart the process of providing information on how much trading happens in its pool. 

The Tabb Group and Rosenblatt Securities, keep the records on dark pool trading - in fact, they're the only ones to provide a window into what's happening in dark pools.  These platforms are under no obligation to follow the same trade reporting rules as public stock exchanges.  The last known statistics show that trading on CrossFinder accounted for almost 2% of all stock trades in February.

Escalating Public Debate.   Credit Suisse would not be the first dark pool operator to "go dark" with its data.  Merrill Lynch Bank of America, JPMorgan, ITG, and Fidelity Capital Markets currently do not report their dark pool volumes.  But CS's decision comes after an escalating public debate about the amount of trading going on away from the public exchanges, and the effect it is having on the stock markets. 

The exchanges, the data firms and many trading firms have said that the amount of trading going on in the dark, off-the-exchanges, now accounts for about 40% of all stock trading.  Just last week the head of the 3 largest exchanges met with regulators to complain about the rise in off-exchange trading. Regulators previously had expressed concerns about the trend. 

Among other things, the exchanges argue that trading in the dark pools hurts open price discovery, harms liquidity and benefits the broker-dealers who run these pools.

According to Rosenblatt Securities, dark pool market share in February executed 14.26% of consolidated U.S. equity volume in February, down from 14.33% in January.  Crossfinder, which accounts for nearly 2% of all trades, and 13% (1/8th) of all trades reported by dark pools, processed 123 million shares in February. 

Credit Suisse has said the data being used misrepresents the nature of trading both on and off exchanges.  Writing in Traders magazine, Dan Mathisson, who head the Credit Suisse dark pool, said that much of the trading happening on the exchanges should be considered dark trading.  He's also criticized an article in the NYTimes on the subject. 

According to one written quote by Mr. Mathisson:  "After the past decade of market structure changes, the difference between exchange trading and off-exchange trading has blurred to the point where there really isn’t that big a distinction."

But Justin Schack, head of dark pool monitoring at Rosenblatt Securities, refutes Mathisson's comments:  "On this issue he is wrong.  Bottom line - exchange dark orders are a totally different animal from the non-exchange dark pools."

Impact of the Reporting Boycott.   Over the last 5 days, off-exchange trading has accounted for 33% of total trading in equities, according to BATS Global Markets data based on transactions reported to FINRA's TRF (Trade Reporting Facility) - or more than double what it was 5 years ago. 

For further details, go to:   [ Dealbook, 4/19/13 ] and [ Traders Magazine, 4/19/13 ].

Contact the Writer at:  Howard@Compliance-Insights.com.