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New York attorney general takes deep dive into 'dark pools'


(Reuters) — The New York attorney general's sweeping investigation into the U.S. stock market will include whether trading centers known as "dark pools" are conducting themselves properly, an official said on Wednesday.

New York Attorney General Eric Schneiderman is seeking information from exchanges and alternative trading platforms about their relationships with high-frequency trading firms as part of his office's probe into allegedly unfair trading practices on Wall Street, sources have previously told Reuters.

Broker-run trading systems known as dark pools, where participants are anonymous and trading information is hidden until after the trades are completed, are a key focus, said Chad Johnson, head of the agency's Investor Protection Bureau.

"We remain highly interested in this area," he said at a conference held by Sandler O'Neill & Partners L.P.

He said his office is looking into whether dark pools are operating in a way that is consistent with how they market themselves, that they have the interests of investors in mind, and that brokers directing trades to their own dark pools do so in a way that does not present conflicts of interest.

Dark pools are more lightly regulated than stock exchanges and do not have to make information on how they operate public.

Several dark pools, including those run by IEX Group, Investment Technology Group Inc., Credit Suisse Group A.G. and Goldman Sachs Group Inc., have recently made their rules public. Mr. Johnson said that was a step in the right direction in increasing market transparency.

"Frankly, it's about time that this trend has started to take hold," he said. He added, however, that of the over 40 U.S. dark pools, only a small minority have made their rules public, and that there are practices not included in those rules that his office is looking into.

"That doesn't end our interest in the area, by any means."