Report sheds light on activity in U.S. dark pool trading

NEW YORK, June 2 Mon Jun 2, 2014 5:46pm EDT

NEW YORK, June 2 (Reuters) - "Dark pools" owned by five big banks account for around half of all trades on alternative trading systems, exchange-like trading platforms that critics blame for making the markets less transparent, according to a weekly report released on Monday.

The report, by the Financial Industry Regulatory Authority, gives data on ATS trades in the most widely traded U.S. securities from the week of May 12-18. It is significant because it is the first time ATSs have been required to disclose their trading activity publicly on a security-by-security basis.

The majority of ATSs are "dark pools," anonymous trading venues that do not make any trading information available until after the trades have been completed. Until now, post-trade ATS data did not indicate to which firms the trades were attributed or what types of dark pools were most used.

"FINRA hopes that providing a clear view of the level of activity handled by these ATSs, or 'dark pools,' will increase market transparency and thereby enhance investor confidence," said Steven Joachim, head of transparency services at FINRA.

Investors can use the information to better determine where to route their orders, he added.

Nearly 40 percent of stock trades take place away from traditional exchanges, up from a little over 15 percent six years ago. This has raised concerns that the prices on public stock exchanges may not reflect true investor demand.

The biggest dark pools were run by Bank of America Corp , Credit Suisse Group AG, Barclays PLC , UBS AG and Morgan Stanley, accounting for half of the volume on the list of 42 ATSs.

Looking at individual stocks, Sirius XM Holdings Inc had the most shares traded in dark pools, followed by Bank of America and SPDR S&P 500 ETF Trust. Some of the most highly traded names in dark pools included Microsoft Corp, Ford Motor Co , Facebook, and Twitter Inc.

Originally aimed at minimizing the market impact of large institutional orders, most dark pools now have average trade sizes lower than those on public exchanges. The average trade size in the top five dark pools in the FINRA report was 187 shares. The dark pool with the highest average trade size was Tradeweb's Dealerweb, at more than half a million shares.

The data in the report included only stocks in the S&P 500 Index, the Russell 1000 Index and certain exchange-traded products, which is released on a two-week delayed basis. Information from the period on all other equities, including over-the-counter stocks, will be released on a four-week lag. (Reporting by John McCrank; Editing by Dan Grebler)