The Financial Services Authority (FSA) is examining the impact of high-frequency trading and the use of dark pools on the UK equity market.
The review - which comes on the heels of a similar probe by the SEC in the US - is being conducted by FSA staff and Henry Knapman, a UBS veteran currently on a year-long secondment at the watchdog, says the Financial Times.
Knapman has been meeting asset managers and hedge funds over the last month to discuss how the emergence of dark pools and high-frequency trading has affected the equity markets.
The review is being styled as an exercise in information gathering and is not expected to lead to a formal report.
Equity markets have seen drastic changes recently, with technological advances increasing the prominence of high-frequency trading and the EU's Markets in Financial Instruments Directive (MiFID) paving the way for a plethora of new electronic trading platforms.
The FSA has recently green-lighted dark pools from Chi-X, Bats, Nasdaq OMX, Nyse Euronext and the LSE. However, earlier this year the regulator did deem Nyfix's Euro Millennium dark pool non-compliant with the latest interpretations of the MiFID rulebook.
Similar concerns in the US recently led to senator Charles Schumer calling on the SEC to ban "flash" trades, where users are given an advanced peek at unfilled orders ahead of the wider market.
The US watchdog had already outlined plans to step up its scrutiny of dark pools amid concerns about the risks posed to market transparency and integrity by the proliferation of off-exchange trading venues.