Although equities volumes have been vanishing this year, the media attention focused on equity trading has been as intense as ever. Specifically, dark pools have felt the heat as a number of trading errors and regulatory investigations have turned up the scrutiny on the space and further damaged the reputations of alternative trading venues.
Pipeline Trading was ultimately forced to shut down earlier this year after the SEC found that many of the orders in its dark pool were matched against proprietary flow and filled at various times by a trading operation affiliated with the firm. Back in August, Knight Capital’s dark pool, Knight Match, saw a sharp decline in volume after a technology glitch caused a series of automatic orders to be mistakenly executed, resulting in massive losses for the firm. Fortunately, Knight’s volume quickly rebounded in the following months.
During the most recent incident, in October, the SEC revealed that eBX LLC (which operates the LeveL ATS) was in its sights. The SEC claims that the technology provider behind the LeveL ATS, Lava, leveraged the LeveL ATS book information in its routing decisions, routing only actionable orders to the ATS. While neither Lava or LeveL released any book or order information to the market, the LeveL ATS saw average volume that month tumble by 54 percent from September 2012 levels. [Ed. note: For more on the claims against LeveL ATS, see the SEC’s related release. For more on eBX’s response, see the company’s letter to customers.]