What does the history of regulations tell us about the future of dark pools?

With the final ATS registered under the new dark pool rules in October, the SEC might like to take a moment to reflect on the 1986 college basketball season.

That year, the NCAA Committee decided that all shots made 19 feet 9 inches from the basket would count as three points. The goal of the new rule was to open up play, and force teams to defend away from the basket. The decision was initially met with the enthusiasm of a root canal by most college programs with the exception of a second year coach from a small New England university. That season, Rick Pitino of Providence College took a team he initially lamented as “extremely mediocre athletically and physically” all the way to the Final Four by designing an offense that took double the number of three-point attempts as their opponents.

The Rules Committee achieved their goal of “open play,” but the game was also transformed on so many other levels: Types of players recruited, offensive/defensive strategy, coaching, substitutions, etc. (not to mention Pitino's future earnings potential). Three decades later, many believe that the three-point arc was the most significant rule change in the history of college basketball.

Since 1998, the SEC has implemented various dark pool regulations culminating with Form ATS-N, a much needed revision to a 20-year-old rule and much more rigorous set of dark pool guidelines. The goal of Form ATS-N is similarly simplistic: increased transparency providing greater investor protections. The question is, could even the most basic and benign of rule changes spin a web of complexity?

To learn more about the unintended consequences of dark pool rules, click on the link to my report “From Beginning to “N”: What the History of Regulations From Reg ATS to Form ATS-N Tells Us About the Future of Dark Pools.”

Criag Viani, Head of US Market Structure