âSecurities and Exchange Commission (SEC) and Committee of European Securities Regulators (CESR) are more and more concerned about the decrease of transparency with liquidity fragmentation and emergence of dark pools as a large component of execution. The adverse effect of dark pools is twofold, first on price discovery and second on price formation. Liquidity fragmentation is more a problem in Europe, since MiFID did not come up with a definition of consolidated Pan-European market data (also called Pan-European tape).
âThe industry expects that on both side of the Atlantic, new regulation will force dark pools to become more transparent â for instance from data being delayed as little as 90 seconds to a few hours. The impact of a reduction of dark pools is mostly on block trades. That would mean that buy side institutions will need to find a new mechanism to execute these trades. This will favour two market participants: the large brokers with deep liquidity who will be able to offer more internalisation services and exchanges which will regain back market share from the plethora of dark pools.â
Quod Financial was established in 2004 by Ali Pichvai.