In a consultation report, the Iosco's technical committee has outlined six draft principles designed to help market authorities in dealing with "issues concerning dark liquidity".

The report comes as regulators on both sides of the Atlantic scrutinise the impact of dark pool trading on markets. In the US, the Securities and Exchange Committee is examining the issue as are European regulators as part of a review of the MiFID rulebook.

The Iosco says the price and volume of firm bids and offers should generally be transparent to the public. However, where regulators consider permitting different market structures or order types that do not provide pre-trade transparency, they should consider the impact of doing so on discovery, fragmentation, fairness and overall market quality.

Information regarding dark trades should be transparent to the public although in respect to the specific data, regulators need to consider both the positive and negative impact of identifying a dark venue.

Meanwhile, where dark trading is generally permitted, regulators should take steps to support the use of transparent orders rather than dark ones. "Transparent orders should have priority over dark orders at the same price within a trading venue," says the report.

Regulators should have a reporting regime or means of accessing information regarding orders and trade information in venues that offer trading in dark pools or dark orders.

Dark pools and transparent markets that offer dark orders should provide market participants with sufficient information so that they are "able to understand the manner in which their orders are handled and executed".

Finally, regulators should "periodically monitor the development of dark pools and dark orders to seek to ensure that such developments do not adversely affect the efficiency of the price formation process on displayed markets, and take appropriate action as needed".

Hans Hoogervorst, chairman, technical committee, Iosco, says: "The principles we are publishing today are aimed at addressing regulatory concerns that dark liquidity poses for markets and regulators in the areas of price discovery, market fragmentation and potential risks to market integrity. The principles will provide regulators with the tools to develop and maintain an appropriate oversight regime aimed at addressing any potential risks posed by dark liquidity in their respective jurisdictions."

You can read the report - now open for consultation until 28 January - here: