A Spotlight in The Dark

Global Equities
A Spotlight in the Dark:

An Inevitable Debate
Miranda Mizen
V10:041
November 2012
www.tabbgroup.com
A Spotlight in the Dark: An Inevitable Debate
November 2012
Vision
It is clear from the hearings in Washington, SEC investigations, academic publications1 and water cooler conversations that at best, the US faces a severe image problem. We believe that the industrys ongoing market structure debate will lead to regulatory changes. Every major development we have seen since Regulation NMS is under review. High frequency trading, algorithmic trading, exchange order types, maker/taker pricing and dark pools have all brought both benefits to a market place now struggling with the cost and complexity of fragmentation and a lack of transparency into how the market really works. TABB Group believes that there is overwhelming evidence that US equity markets are more efficient for retail and institutional investors today than ever before. Spreads have narrowed. Market impact has been reduced. Commission rates have declined. However, because so many changes have occurred over such a short period, it is hard to assign degrees of attribution, and there are significant costs in linking to and finding liquidity across dozens of execution venues. While the statistics have improved, a glaring number of high-profile market problems has market participants concerned. Three dark pools have come under fire for disclosure issues, two disastrous IPOs; Knights trading debacle; and there is controversial debate over some exchange order types. These events then bring into question the very rules that govern market structure, including the eroding difference between the roles of exchanges and brokers. This research piece looks at one component of the larger debate and continues our exploration of issues that include high frequency trading, market data, investor confidence, and the impact of market structure on the investor community. Here, we put the spotlight on one of the more contentious debates around trading in the dark and we inquire into dark execution on- and off-exchange. Like it or not, we believe the rules surrounding offexchange trading in US equities will change it is only a matter of time. Already, regulators in Canada, Europe, Australia, Asia and Latin America have acted, swinging the market structure pendulum in favor of transparency and consolidation. Dark execution exists in many forms both on- and off-exchange. Off-exchange, marketmakers match and better the NBBO, offer risk capital on demand or in the form of actionable IOIs, and negotiate trades between natural buyers and sellers. Automated Trading Systems (ATSs) outnumber the lit exchanges by about 3:1, and incorporate institutional, retail, and high frequency flow. Their levels of darkness vary, as a number of
1
See: Internalization and Market Quality in a Fragmented Market Structure by Daniel Weaver, Rutgers Business School ( July 2011); Whats Not There: The Odd-Lot Bias in TAQ Data, by OHara, Yao and Ye (July 2011); Do Dark Pools Harm Price Discovery? by Haoxiang Zhu, MIT Sloan School of Management (July 2012); and Dark Pools, Internalization and Equity Market Quality by Rhodri Preece, CFA (October 2012).
2012 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |
November 2012
ATSs broadcast indications of interest (IOIs) or order solicitations or have links to other dark pools. The use of dark and undisplayed orders also on the exchange order books essentially makes the difference between dark execution on- and off the exchanges primarily one of regulatory framework rather than a debate over dark versus lit. These all represent unique and valuable execution strategies, and there is danger in tarring all dark activity with the same brush. Any review must consider both environments. While the number of platforms is still growing, some believe that the market is starting to find its own equilibrium. The buy side asks more questions and exerts greater control than before over what happens to their orders and trading counterparties. Others in the industry still expect more dark trading growth as the large brokers consolidate order flow and some attract more high-frequency trading into their venues alongside institutions and retail. When discussing the topic with brokers, we hear some are reassessing their dark strategies and planning how to compete in a changing regulatory environment that favors a more regulated, transparent model. Market structure confidence in the US is low, one-third of US equity trading is executed on a non-exchange venue, and the makeup of this volume lacks transparency. Concerns over the levels of off-exchange trading and fragmentation are tempered with the worry about unintended consequences and lack of alternative safe places to trade. Already there is lively rhetoric about market structure across the industry, and it is probably only a question of time before the SEC starts the consultation ball rolling again on a number of market structure issues. Dark execution will be one of them.
November 2012
Table of Contents
VISION ................................................................................................................................................................... 2 TABLE OF CONTENTS.............................................................................................................................................. 4 INTRODUCTION ..................................................................................................................................................... 5 THE GROWTH OF DARK EXECUTION....................................................................................................................... 8 AN ENTRENCHED PROCESS ...............................................................................................................................................9 OFF-EXCHANGE TRADING AS A HEAT MAP ........................................................................................................................10 DARK EXECUTION ON THE EXCHANGES .............................................................................................................................12 THREE BIG QUESTIONS ........................................................................................................................................ 13 DOES THE PROTECTED QUOTE NEED BETTER PROTECTION? .................................................................................................13 SHOULD CRITERIA AROUND OFF-EXCHANGE TRADING BE ESTABLISHED? ................................................................................13 A QUESTION OF TRANSPARENCY AND FAIRNESS .................................................................................................................15 ACTION IS INEVITABLE ......................................................................................................................................... 17 ABOUT ................................................................................................................................................................. 18 TABB GROUP .........................................................................................................................................................18 THE AUTHOR...........................................................................................................................................................18
November 2012
Introduction
Currently, approximately 30% to 33% of all equity trading occurs off-exchange and is reported to one of the Trade Reporting Facilities (TRFs)2. In addition, 40% or 3,191 publicly traded securities listed on tapes A, B and C, had TRF trading volumes in excess of 40% in September 2012 (see Exhibit 1). This trading is not only in small and less liquid securities; some of the most liquid and highly capitalized securities have almost half of their trading volume reported through the TRF (see Exhibit 2).
Exhibits 1 and 2 No. of Companies with >40% TRF Volume, Sept 2012 Percentage of ADV Reported to the TRF in Select Stocks, Sept 2012
Source: CTA, UTP
The percentage of off-exchange volume causes the exchanges to cry foul, contending that the regulatory environment is uneven since dark execution is not subject to the raft of regulations, standards and disclosure requirements required of exchanges (see Exhibit 3). Yet exchanges also have a variety of order types that result in non-displayed activity and dark execution, and have benefits that brokers do not obtain. Brokers shoulder clearing fees; have best execution obligations in addition to Regulation NMS, which covers all venues; and do not enjoy immunity from civil litigation by disgruntled clients. In addition, exchanges receive market data revenue under the Consolidated Tape Association (CTA) and Unlisted Trading Privileges (UTP) plans, and the tape revenue forms part of the exchanges decisions regarding transaction prices. The exchanges rebate market data revenue to brokers for TRF volume, but brokers do not share the tape revenue on broker and clientinitiated exchange-traded volume.
Before becoming exchanges in 2008 and 2010 respectively, BATS and Direct Edge each reported their trading volumes to the Trade Reporting Facility (TRF). When these are included, the percentage of off-exchange volume has been roughly consistent for years.
November 2012
Dark pool disclosure and discretion are also areas of conflict. Exchanges operate under equal access rules and may not discriminate amongst flow or providers. To segment flow, exchange firms operate multiple SROs with differentiated market and pricing models. Exchanges also segment flow through a great variety of order types, often at the behest of
Exhibit 3 Major Differences Between Exchanges and Off-Exchange Dark Pools Function Exchanges Off-Exchange Dark Pools
Access Open to: Co-location Market Data Pre-trade Transparency Post-trade Transparency Tape Revenue Trading Rules Price Sub-penny price Improvement Regulation NMS Regulation NMS + Best Execution Best quote and total displayed size provided to consolidated tape Yes Mandatory CTA/UTP distribution to exchanges None Yes but ATS identity not required Negotiated rebate of TRF revenue to brokers Non-discretionary access. Limited segmentation subject to SEC approval Rules and fees SEC-governed and public Discretionary access (subject to 5% threshold) No requirements
Mid-point & retail programs subject to No requirements SEC approval Order Ranking & Execution Rules Subject to SEC approval and public. Discretionary Order Types Fees Fees (trading, market data, colocation/connectivity) Clearing fees Liability Legal liability
Source: TABB Group
Subject to SEC approval and public.
Discretionary
Subject to SEC approval and public. Access fee cap at $0.003 per share Routing broker only
Client specific / undisclosed Brokers pay
Limited for SRO functions
Unlimited
the broker-dealers, which are subject to SEC approval. For example, the NYSE Retail Liquidity Program3 and other exchange-based programs allow incremental price improvement within a regulated tick size and enable retail flow to be segmented. While exchanges need to be non-discriminatory, the buy side expects brokers to differentiate between different types of flow. ATSs are regulated by the SEC and FINRA and must file changes such as order types and order ranking with the SEC, but brokers may be discriminatory and are not required to offer fair access below a volume threshold of 5%. Therefore when comparing dark pools, there are differences in latencies, resting times, trading partners, rates and exposure to other dark pools. The buy side wants its brokers to discriminate with its order flow as not all order flow is equal and some can be more toxic.
See TABB Group research: NYSE Retail Liquidity Program: An Innovative Approach to a Challenging Problem
November 2012
Thus, anti-gaming and opt-out functions are generally prerequisite for broker dark pools. As control by the buy side increases, so does the demand for more functions to directly manage order flow, such as making more exchange order types available from the buy-side desktop. For brokers, the economics of matching flow avoids exchange fees, increases commission and draws more liquidity. Brokers have direct access to the buy side and offer liquidity and protection in an increasingly fast and HFT-prone exchange infrastructure. TABB Group estimates that high-frequency trading accounts for 51% of average daily volume, and the buy side is playing a tough game of algorithmic hide-and-seek in the search for liquidity in the open markets. So the quality of the open markets, and the economic and fiduciary need to minimize implicit and explicit costs makes the buy side willing partners in the dark. Indeed dark pool formation has its origins in the buy-side demand for better execution and more competition rather than just NYSE and Nasdaq. Dark pools have allowed liquidity to be democratized rather than locked up within a few relationships and this has resulted in reduced market impact4, reduced explicit costs and price improvement. The original ATSs created an environment conducive to technology innovation and competition, and some of todays exchanges were at one time ATS platforms and operated as dark pools (e.g. when Island went completely dark). However many market participants believe the equity markets are now too fragmented and too opaque, and that dark pools contribute to this.
The total cost for an investor to get in and out of a share fell by more than half from 2000 to 2010, according to research by Abel Noser.
November 2012
The Growth of Dark Execution

Changes in regulation and technology have had a significant impact on the structure of the equities market. Implemented in 2007, Regulation NMS fostered significant competition Exhibit 4 Market Share of Major Exchanges and Aggregate among markets and individual electronic Dark, 2008-12 orders, and established notable rules around order protection, access to quotes, and minimum price increments (i.e., sub-penny rule). One major effect has been the growth in dark trading over the last four years (see Exhibit 4). In this exhibit we separate BATS and Direct Edge volume in order to show the trend of dark and internalized flow reported to the TRF. The composition of off-exchange volume reported to the (TRF) is not visible to the public eye, so TABB Group estimates it5.
Source: Exchanges, Industry
For the month of September 2012, we estimate the breakdown as follows (see Exhibit 5): 67% exchange-reported volume, which includes the execution of displayed and undisplayed liquidity; 2% TRF volume reported by lit electronic communication networks (ECNs); 17% of internalized flow, which includes manually-traded blocks and electronic internalization engines across 100+ brokers. This is the larger dark segment and includes retail internalization from wholesalers. 14% volume traded across dark pools and crossing networks, comprising 38 dark electronic trading environments, most commonly registered as alternative trading systems (ATSs).
Exhibit 5 Breakdown of Trading Volume, Sept 2012
Source: Exchanges, Industry, TABB Group
Starting with public data published by BATS Trading, we carve out the volume reported by exchanges. We then collate the monthly volumes from reporting ATSs. For those that do not disclose monthly, we estimate based on conversations with market participants and public data. This disclosed volume constitutes the percentage we apply to dark pools and crossing networks. The balance is then denoted as internalized. We publish our figures monthly in our TABB Group Liquidity Matrix.
November 2012
Muddying the water further, dark pools that report their monthly volume to TABB Groups Liquidity Matrix do include odd lots if they trade them. An extensive odd-lot study6 asserts that the median number of odd-lot trades across the market is 19%, and they are traded actively in the lit markets and in dark pools. However, odd lots are not published in the consolidated quote or reported to the consolidated tape. This makes their trading obscure although it occurs on lit markets, although the volume traded equates to less than 3% of the Exhibit 6 Volume by Type of Dark Venue, 2008-12 consolidated average daily volume. We further break down the 14% dark activity, since their ownership, execution methodologies and value propositions differ. We divide them broadly into three types, which range in terms of participants, flow, functionality, external links, cost models, price improvement and transparency (see Exhibit 6): Continuous (broker dark pools), which account for the majority of venues, volume and growth; Block crossing networks, which commonly have select membership, larger prints and midpoint trades; and Liquidity providers or ping networks, which offer liquidity on demand.
Source: TABB Group
An Entrenched Process
Dark trading today occurs virtually indiscriminately across exchange-listed securities. The proliferation of dark pools and the common use of order solicitations mean that most orders will be seen at least once before they reach an exchange (see Exhibit 7). For buy-side order flow, trading in the dark is a mix between active participation, such as direct interaction with a crossing network, and the use of an algorithm. Algorithmic orders check broker dark pools first within the confines of the instructions on the order, using the exchange prices as reference prices (see Exhibit 8). The inside quote is matched (or bettered) within the dark pool, routed to another dark venue, or sent to the open market.
OHara, Yao and Ye, op. cit.
A Spotlight in the Dark: An Inevitable Debate Exhibits 7 and 8 Typical Flow of an Order
November 2012
Flow of an Order Through a Broker Dark Pool
Source: TABB Group
Off-Exchange Trading as a Heat Map

Looking across the market for the month of September 2012, the proliferation of dark trading in security and pricing segments is evident (see Exhibit 9). In this heat map, we apply traffic-light coloring to the average TRF share across the securities in different security price/CADV segmentations. Segments in the darkest green represent price/CADV combinations with the least amount traded in the dark, and the darkest red have the most amounts, while eight price/CADV combinations do not have any securities that met both criteria for the month of September. Although this is a single month, there are observations to be made around some of the clusters: 1. Low-priced active securities offer plenty of displayed liquidity to trade with, so there is little risk in matching the price, especially for dark pools that contain highfrequency trading. Low-priced securities also have a natural competitive spread inside the minimum penny tick sizes required of exchanges, and this can be satisfied in the dark. In addition, exchange fees in low-priced securities quickly add up. 2. High-priced, active securities often have wider spreads and a bigger outlay of capital per quote, creating an unattractive trading environment for high-frequency trading due to greater visibility and increased risk of not being able to either capture the spread or get out at low cost. If the cost of providing liquidity off-market and the realized spread are greater off-market, then the dark environment is more attractive despite rebates on the open market.
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3. Low-priced, illiquid securities offer insufficient liquidity at individual price points for high turnover. Under the JOBS Act of 2012, the SEC is examining whether larger tick increments would benefit smaller companies and result in a more consolidated grouping of liquidity at the price points. This of course will only be valid if such tick increments are applied across the board 7.
Exhibit 9 Market Segmentation Showing Percentage of TRF-Reported Volume, Sept 2012
Source: CTA, UTP
Events such as the rebalancing of the Russell Index will provide momentary redirection of flow to the exchanges. In our sample month of September 2012, TRF volume would have been approximately 1%-2% higher except for quadruple witching on September 20.
See: The trouble with small tick sizes: Larger tick sizes will bring back capital formation, jobs and investor confidence, by Grant Thornton.
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November 2012
Dark Execution on the Exchanges

Dark execution is also available on the exchanges, and every exchange has a variety of order types that enable this. Each order type is associated with an exchange rule and orders can be undisplayed, pegged, routed out to liquidity partners and executed at the best price quoted by another exchange, all of which comprise dark execution. But each exchanges ability to compete is limited by its regulatory framework, such as clearing its own book before pinging a network of liquidity providers, trading displayed liquidity before undisplayed at the same price, before routing to dark environments and other lit exchanges. The need for price discovery also means displayed liquidity and tight quotes receive the highest rebates. However, dark orders traded on exchanges are reported as part of the exchanges total volume and this limits transparency into the levels of dark activity that actually take place on exchanges. In September 2012, estimated volume comprised of dark orders comprised just under 7%, of which nearly half occurs at the midpoint. In the aggregate, the details of the many exchange order types and rules that govern the markets are laid out across different websites and together create a tangle of detail, and in the highly fragmented market, this overwhelming detail results in increasing complexity. In short, the inability to determine what is happening in the marketplace results from an increasingly complex ecosystem, including greater dark trading and fragmentation.
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November 2012
Three Big Questions

The on-/off-exchange debate is an issue of how the wholesale and retail markets fit together. Buy-side traders with oversized orders to fill want sizeable fills, natural counterparties and the ability to avoid being seen. However, the quality, fairness and efficiency of the public markets are brought into question if they are a destination of last resort. We do not purport to have the end solution but we anticipate regulatory focus on price discovery, price improvement, trade size and transparency as part of the broader market structure debate.
Does the Protected Quote Need Better Protection?

Across the lit markets, lit liquidity at a single price point trades ahead of undisplayed liquidity, and the best displayed quote is protected by Regulation NMS. Priority of execution, most commonly price/time priority, is respected within each markets book but different pricing models will impact the routing of orders by brokers to lit markets. In the SIRI example given here, 43,984 shares traded off-exchange at the national best offer while 730,300 shares of displayed liquidity did not trade. A median size of 487 and average size of 8,797 shares indicates that sizeable trades were the exception (see Exhibit 10). Displayed limit orders keep explicit trading costs down by creating narrower spreads and additional depth of book. They allow portfolio managers to put a ceiling and floor on the price they pay and provide price protection and support from the market moving against them. Displayed limit order support is particularly important during times of extreme market stress. When trades continually hit the tape ahead of displayed liquidity, establishing the quote on the lit markets loses its attraction. In addition, a drain of liquidity could also affect the benchmarks. For example, if market-on-close/open orders do not participate in the closing/opening process but can be printed off-exchange to avoid exchange fees, etc., this must ultimately affect both the closing imbalance and validity of the closing price.
Source: UTP
Exhibit 10 Case Example - SIRI
Should Criteria Around Off-Exchange Trading be Established?

Unless the trends change and the level of dark volume starts to decline, US regulators will be under pressure to reconsider establishing restrictions for off-exchange trading, specifically price or size restrictions. If a minimum price increment for small size or a minimum trade size were imposed on the SIRI example given earlier, many of the trades would not have occurred off-exchange, but that does not mean by default that such trades would migrate to the lit markets.
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November 2012
For many of the securities that trade heavily off-exchange, the trades are printed at a penny increment (see Exhibit 11). Given a consistency of on-exchange spreads at a penny, it is reasonable to assume that these trades are not offering a whole penny price improvement, but rather matching the NBBO. In September, 75% of the ADV reported to the TRF was printed at or within $0.001 of the NBBO. We take the measure of $0.001 since it is the minimum price improvement increment for the NYSE retail liquidity program.
Exhibits 11 and 12 Percentage of TRF Prints at/near the Quote for Select Securities, Sept 2012 / Percentage of Prints at/near the Quote On/Off Exchange, Sept 2012
Source: CTA, UTP
On-exchange, 97% of exchange volume was traded at or near the NBBO and this comprises displayed orders, undisplayed liquidity associated with displayed orders (reserve orders), and dark orders (see Exhibit 12). The breakdown of displayed and undisplayed volume is not transparent but for the month of September, dark orders across all the exchanges accounted for approximately 6.9% of the total volume of which nearly half or 3% - was executed at the mid-point. To be meaningful, price improvement needs to be viewed in conjunction with the implicit costs of trading and the impact on the lit market, for example an order moving an entire price level or hitting an air pocket of liquidity. Price improvement and trade size are related. Block crossing networks boast larger average trade sizes (e.g., Liquidnets average trade size exceeds 39,000 shares), but the average trade size across continuous pools is under 300 shares, which is similar to the average trade size in the lit markets, reducing the difference in trading behavior between exchanges and off-exchange dark venues (see Exhibit 13).
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A Spotlight in the Dark: An Inevitable Debate Exhibit 13 Average Trade Size Across Select Exchanges and Dark Pools, Aug 2012
November 2012
Source: Industry, BATS Trading
A Question of Transparency and Fairness

Anti-gaming functions and relationships protect buy-side clients from adverse behavior, yet there is commonly little transparency into order placement logic, linkages, wait-times, routing priorities and how best execution is measured at a particular point in time. Buy-side traders tell us that most brokers have made headway in terms of operational transparency, such as routing methodologies and details of linkages with other pools (see Exhibit 14). They rely on dial controls and their broker relationships to avoid information leakage and overexposure in the dark.
Exhibit 14 Buy-Side Expectations Around Transparency into Dark Environments
The majority do not have the resources to actively monitor dark activity or scrutinize every trade when trading using broker algorithms, and rely on broker best-ex obligations, their own trading experience and transaction cost analysis reports. The quality of execution data is, however, skewed by the fact Source: TABB Group that the earliest and easiest executions occur off-exchange, the least visible part of the market. By the time executions occur on the lit market, information has leaked 8.
8
The Weaver study expands on the relationship between transparent quote competition and benchmark spreads. Op cit.
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November 2012
The proprietary nature of dark platforms requires a level of protection to safeguard innovation and competitive edge. Yet internalization raises questions of fairness, if trading interest can be observed without commitment to trade, and indications of interest create an exclusive network of activity. The question of fairness is also at the heart of the ill-fated flash orders implemented by some exchanges.
Exhibits 15 and 16 Buy-side Views on Whether the Level of / Off-Exchange Trading Needs to be Addressed Market Structure Confidence, 2010-12
Source: TABB Group
In conversations with buy-side traders, they express concern over the level of off-exchange trading (see Exhibit 15), although opinions on solutions are mixed. In addition, our market surveys show market structure confidence continuing to decline (see Exhibit 16). Put together, this is not a dark-versus-lit question, but a question of how different and similar activities and execution alternatives should be regulated and fit together.
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November 2012
Action is Inevitable
Given current trends, action seems inevitable. However the longer the SEC waits, the more disruptive will be any adjustment to the market, and we echo the worry of market participants about the unintended consequences of significant regulation 9. The SECs Concept Release of January 2010 contained a series of sound questions about the market structure that we believe will be revisited. It asked important questions around whether a trade-at rule would benefit the market and whether the trading volume threshold in Regulation ATS that triggers the fair access requirement should be lowered from the current 5%. The SEC has put out three ATS proposals around treating indications of interest as quotes, display thresholds and post-trade transparency for ATSs, with no consequence. The CFTCSEC Joint Advisory Committee recommended a Trade-At Rule in the wake of the May 6, 2010 Flash Crash10. While all these subjects provoke both criticism and support, the whole debate has died on the vine. However, the JOBS Act of 2012 indirectly forces open one door to change, as the SEC is set to review tick sizes of smaller companies and will need to consider any change market-wide. Elsewhere, regulators are acting. Canadian regulators have imposed a new framework including priority of lit over dark flow and a minimum price improvement requirement for dark orders. In Europe, expected legislation under MiFID II will reshape the landscape, although we worry about the radical extent of the collective changes. We believe the statistics presented here support the need to understand better the makeup of off-exchange trading in relation to on-exchange trading. The off-exchange trading debate will likely be resurrected with a focus on its impact on the public market, how regulatory structures should differ across services, and on levels of transparency. The studies cited in this research point collectively to problems. The Weaver study11 concludes, for example, that 40% TRF activity in NYSE stocks would result in wider quoted and effective spreads, which collectively amount to $3.9 million per year per stock to investors, and points to an increase in price impact, realized spreads and volatility. But scrutiny of dark execution off-exchange must equally scrutinize dark execution onexchange, where the complexity of order types and high-frequency trading create a very difficult trading environment. Trading outside the lit order books offers legitimate value and advantages, but the industry lacks consensus about its cause and effect. Any focus on dark trading needs to be grounded in data and measured against benchmarks of fairness and efficiency in the market to avoid being subject to speculation, polarized opinion and needlemoving regulation. To be effective, the dark debate must be part of the broader market structure debate that includes the quality and efficiency of the lit markets.
9
Larry Tabbs Testimony to the Senate Banking Committee, September 27, 2012. Preliminary Findings Regarding the Market Events of May 6, 2010. 11 Weaver, Op.Cit.
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About
TABB Group
TABB Group is a financial markets research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the methodology of first-person knowledge, TABB Group analyzes and quantifies the investing value chain from the fiduciary, investment manager, broker, exchange, and custodian. Our goal is to help senior business leaders gain a truer understanding of financial markets issues and trends so they can grow their business. TABB Group members are regularly cited in the press and speak at industry conferences. For more information about TABB Group, go to www.tabbgroup.com.
The Author
Miranda Mizen
Miranda joined TABB Group in March 2008, bringing more than 20 years experience in the equity trading, product management, and product strategy arenas. Her experience includes serving as Senior Vice President of Transaction Services at the American Stock Exchange, where she headed the group responsible for the functional development of the Exchanges hybrid trading platform for equities and Exchange-Traded Funds; as a Senior Analyst at TowerGroup, where she authored reports focusing on technologies used by institutional brokers; and time at Instinet, which she joined in the United Kingdom in 1997 as a product manager responsible for designing and implementing an order management system for cross-border business. She moved to New York in 1999 to work on front-end trading applications. From 1987 to 1997, Miranda held several positions at S.G. Warburg (later incorporated into SBC Warburg and ultimately UBS), including head of French equity trading. Miranda holds a Bachelor of Science degree from University College, Cardiff, Wales.
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www.tabbgroup.com Westborough, MA + 1.508.836.2031 New York + 1.646.722.7800 London + 44 (0) 203 207 9397
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Global Equities

A Spotlight in the Dark:

A Spotlight in the Dark: An Inevitable Debate

A Spotlight in the Dark: An Inevitable Debate

A Spotlight in the Dark: An Inevitable Debate

A Spotlight in the Dark: An Inevitable Debate

Source: CTA, UTP

A Spotlight in the Dark: An Inevitable Debate

Subject to SEC approval and public.

Client specific / undisclosed Brokers pay

Limited for SRO functions

A Spotlight in the Dark: An Inevitable Debate

A Spotlight in the Dark: An Inevitable Debate

The Growth of Dark Execution

Exhibit 5 Breakdown of Trading Volume, Sept 2012

Source: Exchanges, Industry, TABB Group

A Spotlight in the Dark: An Inevitable Debate

Source: TABB Group

OHara, Yao and Ye, op. cit.

Flow of an Order Through a Broker Dark Pool

Source: TABB Group

Off-Exchange Trading as a Heat Map

A Spotlight in the Dark: An Inevitable Debate

Source: CTA, UTP

A Spotlight in the Dark: An Inevitable Debate

Dark Execution on the Exchanges

A Spotlight in the Dark: An Inevitable Debate

Three Big Questions

Does the Protected Quote Need Better Protection?

Exhibit 10 Case Example - SIRI

Should Criteria Around Off-Exchange Trading be Established?

A Spotlight in the Dark: An Inevitable Debate

Source: CTA, UTP

Source: Industry, BATS Trading

A Question of Transparency and Fairness

Exhibit 14 Buy-Side Expectations Around Transparency into Dark Environments

A Spotlight in the Dark: An Inevitable Debate

Source: TABB Group

A Spotlight in the Dark: An Inevitable Debate

A Spotlight in the Dark: An Inevitable Debate

A Spotlight in the Dark: An Inevitable Debate

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