Invesco’s Cronin Critiques Dark Pool Proposal

11-23-2009 | Source: Wall Street Letter

Rules proposed around alternative trading systems by the Securities and Exchange Commission have disconcerted Kevin Cronin, managing director and global head of trading at Invesco, because of how they could potentially disadvantage institutional investors. In an event hosted by the Investment Company Institute today, Cronin expressed concerns that the proposed reporting requirement would expose to high frequency traders where an institution is trading and in what quantity. “All these guys are out there pinging systems, but at least they don’t know where we are. At least they don’t understand which venue it is we’re executing in,” he explained. “From an institutional perspective it’s a big concern.”

Under proposed changes, the dark pools reporting trades would now be identified as the trade executer, except in cases of orders that are more than $200,000. Now, trades are reported anonymously, with dark pools identified as “OTC.” Cronin said there are high frequency traders in the market place who ping dark pools and try to reverse-engineer how trades are being done. He said if these traders were to know where an institution is trading and in what quantity, it could be detrimental. Cronin noted that he is fine with the rules’ intent overall, but worried about unintended consequences.

Other rule proposals include requiring actionable indications of interest to be treated like other quotes, to lower the trading volume threshold for alternative trading systems to 0.25% from 5%, and to create the same level of post-trade transparency for dark pools and other ATSs as for registered exchanges. The proposals, posted on the SEC’s Web site on Friday, can be found here.