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The light and the dark

Flash-trading, high-frequency trading, algo trading (there will be a test at the end of term) have been the villains of the Summer of 2009 according to various news reports.

The scariest scenario peddled in the press is that these quick, small order trades will be executed via dark pools - normally used to shift large, block orders of less-than-liquid securities. That's not to say that dark pools been spared a certain amount of scrutiny themselves from the likes of the SEC and the FSA.

For their part, the dark pools are all reading from the same script. In July Mark Hemsley, chief executive of Bats Europe told the FT that high-frequency players "will go with the lit book."

However, in a video interview with Finextra, Smartpool CEO Lee Hodgkinson hedged his bets a bit. He told Finextra that while the focus for dark pools will remain on "getting wholesale business done. That is not to say that transaction sizes won't reduce in dark pools - I think they will."

But Hodgkinson qualified that remark by adding: "Lit markets serve the high frequency traders very very well; there is no real advantage to do that in the dark."

When the born-again regulators grow tired of their new found devotion to governance there is every chance that minimum order sizes will shrink within dark pools - but they probably won't shine a light on that one.


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