Dark pools feel pressure as regulators clamp down on private exchanges

The regulatory noose is tightening around dark pools, private share-trading venues that promise anonymity for specialist investors, offering a chance for rival exchanges in the United States and Europe to take back market share.

But traditional stock exchange operators such as LSE Group, Nasdaq OMX and Euronext cannot just expect business to drop back into their laps after years of seeing market share slip away to more opaque platforms that offer privacy or to upstart venues with slick technology.

Recent enforcement actions against dark pools run by big global banks have alerted investors to the risks of trading in the murkier areas of the market.

The risks range from concern over a lack of disclosure about how the pools operate and price trades to fears that some give an unseen advantage to high-speed traders using sophisticated technology and computer algorithms. It will be no mean feat to persuade professional investors drawn to the lower costs and price stability of dark pools to change their habits.

"It is going to be a fight for the public exchanges," said Matthew Coupe, a director of regulation and market structure at financial compliance firm NICE Actimize. "The dark pools are not going to give up market share easily."

The proliferation of dark pools, which today account for about 12 per cent of US trading volumes and 10 per cent of Europe's, according to consultancy GreySpark, helps match buyers and sellers of big blocks of shares who might otherwise have triggered big price swings on a traditional "lit" stock market.