Invesco's Cronin said the SEC is trying to strike the right balance with its proposal. "I'm comforted by the fact that there is a limitation on what needs to be divulged," he said.
The SEC has also proposed substantially lowering the level of trading volume in a particular security in each pool that triggers the public dissemination of best-priced orders for a listed stock, and requiring that the identity of dark pools be disclosed publicly on reports of executed trades.
If the volume trigger is lowered and a particular security hits that level on a specific pool, it "certainly changes the nature of that dark pool for that particular security," said Sauter. "It no longer has the features that a block trader would be looking for."
Cronin said that reporting the identity of pools on reports of an executed trade is concerning. Doing so could permit an entrepreneurial trader to "not only determine if there are large buy or sell orders, but do the math to figure out the order size and how it's being carved up over the course of the day." The trader could then start buying in front of large orders, Cronin said.
Vanguard's Sauter, however, said traders have that capability already; the change would just make it easier for them.
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