How will regulation affect the future of dark pools?
Regulation will definitely have an impact on dark pools and dark-pool linkages, most notably where these linkages are via indications of interest (IOIs). We believe that on balance, regulators and clients will see IOIs as a negative. Whilst regulators are comfortable with displayed and dark markets such as NASDAQ, or with fully dark pools that follow established dark pool business models, they will increasingly focus on emerging grey pools which seek to show details of some orders to a small subset of the market. We expect to see increased regulation of grey pools. Is regulating IOIs a bad thing? Of course we can’t predict the direction this regulatory focus will take; therefore, its future impact is uncertain. If the regulators clamp down on IOIs there will be less connection between dark pools and therefore less maching and fewer executions – something that may not be in the best interests of clients overall. Connecting to multiple venues provides more access to liquidity, which is g
