SEC May Force More Disclosure About ‘Dark Pools,’ Schapiro Says
By David Scheer and Jesse Westbrook
June 19 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Mary Schapiro, concerned that trading on private electronic markets may pose “emerging risks,” said the agency may require firms to disclose more information on their transactions.
If trading systems known as “dark pools” expand substantially, they may “prompt speculation and suspicion” about price fluctuations because they don’t provide enough transparency, Schapiro said in speech yesterday in New York. Traders with access to the private markets’ pending orders also may gain an unfair advantage, she said.
“Given the emerging risks posed by dark pools, the commission will be taking a serious look at what regulatory actions may be warranted,” Schapiro said. She said she’s asked SEC staff to review ways to “best bring light” to dark pools.
The measures would be among reforms, some aimed at the municipal bond market and U.S. brokerage industry, to be introduced as the government overhauls financial regulations. President Barack Obama on June 17 proposed the most sweeping change in U.S. oversight in 75 years to avoid failures like the credit collapse that helped destroy $26.4 trillion in global stock market value.
Obama’s plan would impose a so-called fiduciary duty on brokerages offering investment advice, requiring the firms and their employees to act in their clients’ best interest. Brokerages are currently subject to other requirements, including that they recommend “suitable” products.
“When investors receive similar services from similar financial-service providers, they should be subject to the same standard of conduct,” Schapiro said at an event held by the New York Financial Writers’ Association.
‘Regulatory Regimes’
The “regulatory regimes” that govern brokers and investment advisers who are providing similar services should be “virtually identical,” she said.
Schapiro’s stance on merging rules may touch off a fight with money managers if the SEC urges Congress to create a self- regulatory organization for the managers, a step opposed by groups such as the Investment Adviser Association.
U.S. brokerages are subject to rules, inspections and fines by the Financial Industry Regulatory Authority, which is funded by the securities firms and has executives from the companies on its board. Schapiro was chief executive officer of Washington- based Finra before becoming SEC chairman in January.
Schapiro said she will urge Congress to expand the SEC’s authority to regulate the municipal-bond market. A 1975 law known as the Tower Amendment exempts cities and states that sell bonds from filing documents with the SEC, as required of corporations that sell securities.
Municipal Transparency
Calls for more transparency follow SEC sanctions on the city of San Diego in 2007 for making inadequate disclosures to those who bought its debt.
On dark pools, Goldman Sachs Group Inc. and Credit Suisse Group AG said June 17 that they would support an SEC proposal to adopt a uniform method for reporting equity trading volumes. Such a step would make numbers reported by different firms more comparable.
Some dark pools double-count trades because they have paired off a buy and a sell order from different customers. Once completed, the transaction is reported to exchanges without identifying the venue.
Identifying trades completed on dark pools and requiring they report transactions the same way may be helpful for investors, James Brigagliano, acting co-head of the SEC division responsible for oversight of exchanges, said last month.
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