29 May 2009

Dark pools

From a recent Zerohedge blog post:

James Brigagliano, co-acting director of the SEC's Division of Trading and Markets, said dark pools could impair price discovery by drawing valuable order flow away from the public quoting markets. "To the extent that desirable order flow is diverted from the public markets, it potentially could adversely affect the execution quality of those market participants who display their orders in the public markets," he said.

To remedy this, the SEC, Brigagliano suggested, may impose post-trade reporting requirements on dark pools. "While full pre-trade darkness is an important element of the business models of some dark pools, it does not appear that some form of improved post-trade transparency would be likely to interfere with those business models," he said. "Indeed, uniform and accurate trade reporting practices could help establish a fairer playing field because those dark pools that report their volumes accurately won't be disadvantaged in comparison to those that inflate their volume."

I wonder if the SEC's interest in transparency extends to the gold market? One very simple transparency measure would be to breakdown central bank gold holdings into

a) physical bars under the control of the central bank;
b) physical bars on deposit with outside counterparties;
c) unallocated deposits with outside counterparties; and
d) leased out.

For more information on the games played by central banks on reporting their gold "holdings", see Golden Sextant's Déjà Vu: Central Banks at the Abyss

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