Per a Fox Business Network report, the dark-pool trading probe has been extended to Morgan Stanley (MS) and The Goldman Sachs Group, Inc. (GS). The trading that takes place in dark pools operated by these two big Wall Street firms is being investigated by New York’s Attorney General. Notably, dark pools of many banks including Barclays PLC (BCS) and Credit Suisse Group AG (CS) are already under regulatory review.
Notably, MS Pool of Morgan and Sigma X of Goldman are among the biggest dark pools in the country.
Dark pools are alternative trading systems or private exchange, where institutional investors can anonymously trade shares. Unlike the established stock exchanges, dark pool trading venues are not accessible by the investing public, and moreover, the price and the volume of trade are disclosed only after the trading is complete.
Hence, the crux of dark-pool trading is lesser transparency. Consequently, brokers and proprietary trading firms that use aggressive high-frequency trading strategies are in a position to take unfair advantage over other clients.
Nevertheless, New York’s Attorney General has recently launched an unprecedented investigation into dark pools and has indicted Barclays’ for allegedly failing to disclose the number of high-frequency trades. Another big bank Credit Suisse has also been charged by the attorney general’s office on similar grounds.
Alacrity of regulators to initiate investigations in dark pool trading indicates willingness of the government to bring transparency in the trading industry, and more importantly to protect the interests of investors.