The “Company” You Keep: Form ATS-N Reveals How Brokers’ Desks and Affiliates Interact in Their Dark Pools

In one of Aesop’s fables, a man brings home a donkey on a trial basis. In the pasture, the man observed the donkey take an instant liking to the laziest ass of his bunch (his words from 600 BC, not mine). The man immediately returns the animal back to his former owner based on his indelible first impression that the new donkey will turn out as worthless as his choice of companion. There are many aspects to this parable, but perhaps the most important is its reflexiveness: man can be quick to judge you by the company you keep.

If you think our temperament has evolved in the three thousand years since that parable was penned, then ask the traders next to you their feelings about that group of co-workers constantly sneaking out for an extended lunch break.

In a similar fashion, the SEC has concerns about the entangled relationship between broker dealers, their affiliates, and the dark pools they run. Unlike Aesop and your co-worker, regulators are refraining from passing judgment imprudently and recently obligated dark pool operators to provide more detailed disclosures around the trading activity, order interaction, and confidentiality of information in their dark pools and across their business units and affiliates.

Our latest paper dives into the 31 Form ATS-N filings with the goal of untangling these relationships while identifying both commonalities and exceptions in registered NMS Stock ATSs.  

For more, read “The “Company” You Keep: Form ATS-N Reveals How Brokers’ Desks & Affiliates Interact in Their Dark Pools”.

Craig Viani, Head of US Market Structure