The Securities and Exchange Commission is to extend its regulatory probing of dark pools to include issues surrounding high frequency trading, direct market access and co-location.
Speaking at a securities conference in Basel, Switzerland, SEC chairman Mary Schapiro reiterated regulatory worries over the expansion of dark pool trading and its impact on transparency and market fragmentation.
"As dark pools divert an increasing volume of order flow away from the public quoting markets, the potential for market fragmentation is a concern," she said. "Also, where there is less publicly-available information about the trading practices of significant markets, there may be more opportunities for information to be leaked only to favored market participants. For these reasons, the SEC is considering whether dark pools need more light."
The SEC has already proposed a ban on flash order types, where users are given an advanced peek at unfilled orders ahead of the wider market.
The regulator is now widening its probe to cover other recent advances in automated trading, said Schapiro.
"We have recently begun an in-depth review of multiple market structure issues given the rapid advancements in technology," she told the conference. "In addition to our recent actions with regard to flash orders and our current focus on dark pools, we will also examine high frequency trading, direct market access and co-location."
Schapiro's remarks came as Thomson Reuters released the results of a poll of 100 buy and sell-side participants on the impact of high-frequency quantitative trading.
While 70% of respondents felt that high frequency trading strategies made execution easier and brought additional liquidity, 63% agreed that the tactic could potentially pose a risk to the market.
Ninety-six per cent of the audience felt that regulators are not fully up to speed regarding the implications of high frequency trading.
Similar sentiments have been expressed this week by the World Federation of Exchanges, which has called for co-ordinated action by regulators to reign in the spread of dark pools.
Speaking at a WFE conference in Vancouver, Federation chairman William Brodsky, said: "We've allowed the technology and the evolution of these markets to run way ahead of the regulators' ability to understand them."