Light relief for dark pools

The dark pool debate has raged across the globe for some time now and, in every jurisdiction, it’s more often than not accompanied by a smattering of assumptions on almost everything and certain knowledge of almost nothing. Fair enough, in the absence of hard facts, the term dark pool doesn’t really instil a great deal of trust from the outside world. But this lack of reliable information has been significantly reduced by the recent publication of the FCA’s thematic review on equity dark pools.

The report not only describes current practices, but also highlights the FCA’s expectations of dark pool users and their decision to engage in them, their due diligence and their monitoring efforts. Equally, the FCA addresses dark pool providers and their requirements around client communications, client onboarding, operational integrity, fairness of access and best execution, just to name a few.

While the report is rich in detail and spells out a number of areas for improvement, overall the FCA recognises the role that dark pools play in providing additional liquidity and lowering the risk of information leakage. This sobering and perhaps surprisingly positive picture isn’t likely to last though. With MiFID II just around the corner, and its stricter approach to OTC trading and double volume caps for equities dark trading, the rosy glow the FCA’s review casts around dark pools looks set to fade rather quickly.