Financial Regulatory Forum

Goldman Sachs tells U.S. SEC “dark pools” help investors

October 27, 2009

Oct 27 (Reuters) – Anonymous trading venues known as “dark pools” are a technological evolution that have benefitted both institutional and retail trading by bringing down transaction costs, Goldman Sachs Group Inc said in a memo to the U.S. Securities and Exchange Commission.

Last week, the SEC voted unanimously for ways to make the dark pools more transparent, such as revealing the electronic trading messages that are sent to a limited group of market participants.

In a report submitted to the SEC on Oct. 22, Goldman said the investing community — especially retail — has benefitted from the evolving market structure and industry competition.

The Goldman report, posted on the SEC website, summarized a meeting held on Sept. 24 between its executives and the commission staff to discuss issues involving market structure including short selling and dark pools.

In the report, Goldman stated five common myths regarding dark pool trading and supplied arguments in an effort to dispel those myths.

Dark pools are trading platforms where buyers and sellers can anonymously match large blocks of stock, keeping details of the deals and prices concealed to prevent distorting prices in the broader market.

Dark pools, the largest of which are run by banks such as Goldman Sachs and Credit Suisse <CSGN.VX>, account for an estimated 10 to 15 percent of overall U.S. equity volume.

Goldman said in the report that increased competition from dark pools pushes all execution venues to compete for retail order flow in a superior manner.

“While market structure evolution has not been without its challenges, they have been accompanied by a secular decline in both implicit and explicit trading costs, benefiting primarily retail investors,” Goldman said in the report.

(Reporting by Sakthi Prasad in Bangalore; Editing by Jon Loades-Carter)
((sakthi.prasad@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: sakthi.prasad.reuters.com@reuters.net))

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