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UPDATE 1-Need for trade execution transparency gains on Wall St
2014年9月10日 / 晚上9点14分 / 3 年前

UPDATE 1-Need for trade execution transparency gains on Wall St

* Ignorance of order execution spurs new business

* Compliance with ‘best execution’ also a driver (Adds FINRA to consider new rules for dark pools)

By Herbert Lash

NEW YORK, Sept 10 (Reuters) - Executing an order in the stock market may be lightening fast but many investors do not know how trades happen while rules to ensure full transparency are lacking, a potential bonanza for businesses that can fill this hole in the marketplace.

TABB Group, a Wall Street research and consulting firm, on Wednesday launched “Clarity,” a trading venue and routing analytics service that will cull information from major brokers in the hopes of boosting order transparency in the stock market.

Consultants KOR Group also announced a best execution accreditation service geared to analyzing trading policies and procedure at asset management firms, and to provide analysis of order flow and routing decisions.

The Financial Industry Regulatory Authority, a self-funded regulator, said on Wednesday it would consider putting new rules in place to improve transparency at broker-run alternative trading systems, known as “dark pools,” as well as among firms that use algorithmic trading strategies.

The potential new rules around expanded trade reporting, clock synchronization and the supervision of algorithmic trading strategies, among others, would be discussed Sept. 19. (

The U.S. Securities and Exchange Commission requires that brokers obtain the “best execution” of customer orders, but the obligation is so hard to enforce, regulatory fines are rare.

SEC Chair Mary Jo White in June acknowledged that monitoring the execution quality and costs of orders can be difficult for even the most sophisticated investors because of the large number of trading venues and order types available to brokers.

White ordered her staff to recommend a rule that would enhance order routing disclosures. Her comments reflect growing concern on Wall Street that compliance and order execution needs to improve for professional investors, many of whom know little about order routing.

These investors are increasingly at a loss to explain what exactly happens when trades are executed, said Larry Tabb, founder and chief executive officer of TABB Group.

“The market is getting harder to trade,” Tabb said, noting the increased usage of dark pools and fragmented liquidity.

TABB aims to provide greater transparency and insight into trading, and to limit information leakage that large orders that oozes out when it is chopped into hundreds of smaller orders in a bid to go unnoticed.

The SEC requires stock exchanges, alternative trading venues and broker-dealers to publicly divulge statistics in comparable formats to help investors understand the quality of trade executions and in making decisions about order routing.

The statistics are published in Rule 605 and 606 reports, but the data are not fully comparable as they only reflect the type of orders each trading venue receives. Another difficulty is each customer’s objective may differ.

These shortfalls have sown confusion among investors and their brokers. Morgan Stanley, JPMorgan Securities and Goldman Sachs all say in disclaimers about trading disclosures that they alone are not a reliable basis to address whether the most favorable terms were obtained.

Regulators will begin to push the securities industry toward a more quantitative and systematic approach, and clients will demand asset managers employ more rigorous and open methodologies, according to KOR Group. That may help the SEC and FINRA in policing in these areas, said Chris Nagy, founder and chief executive of KOR.

“Best-ex cases are some of the hardest cases for the SEC and FINRA to bring, because it’s so nebulous,” said Nagy. (Reporting by Herbert Lash; Editing by Lisa Shumaker)

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