Global regulators should take a closer look at dark pools after a probe into trading practices led to a complaint against Barclays Plc, according to Deirdre Somers, who heads the Irish Stock Exchange.
Dark pools “are necessary in order to be able to trade large blocks without distorting the market,” said Somers, 48, in an interview in Dublin. “But I believe regulators should look very closely at whether they’re being used solely for that purpose and who gets what out of those markets.”
Brokers and mutual funds last month pulled out from a dark pool owned by Barclays after New York Attorney General Eric Schneiderman said in a civil complaint that the bank lied to customers and masked the role of high-frequency traders to boost revenues. Barclays, which runs one of Wall Street’s largest private-trading venues where investors can trade stocks mostly anonymously, has said it is cooperating with Schneiderman’s office and examining the matter internally.
Unlike stock exchanges grappling with tougher oversight and increasing costs, dark pools remain largely unregulated, putting them at an advantage, according to Somers.
“We have no problem with dark pools once they’re playing with the same rules as we have to,” she said. “We have a massive regulatory overhead, surveillance overhead, price formation and transparency overhead. Dark pools don’t have any of those, yet we’re supposed to be competing on the same pitch. That’s not sustainable.”
None of Ireland’s largest banks run any dark pools and are largely focused on lending to the domestic economy.
Somers, a native of Cork in southern Ireland, started her career with KPMG in 1987. She joined the Irish Stock Exchange in 1995 and was promoted to chief executive officer in 2007.
The ISE’s net income rose 16 percent to 6.1 million euros ($8.3 million) last year. The bourse has posted profits in every year since 2009, as its fixed income and funds listings operations, which make up three quarters of the business, helped offset a slump in equity markets.
“We’ve demonstrated a robustness in our business model that people didn’t give us credit for,” Somers said.
The exchange, with roots in 1793, is Europe’s third largest for debt listings, behind the Luxembourg Stock Exchange and Deutsche Boerse AG in Frankfurt, according to the ISE, citing industry data. Issuers include Microsoft Corp., Coca-Cola Co. and Commercial Bank of Qatar QSC.
While CRH Plc, Greencore Plc and Grafton Plc are among companies that moved their primary listing to London, the exchange’s independence helped it set up a market for real-estate investment trusts, or REITs, over the past year, according to Somers. Three REITs have since floated, she said.
“The Irish market desperately needed the capacity to get international investment into commercial property,” Somers said. “We’d still be waiting in a queue for that type of innovation in the market place if we were dependent on an international exchange somewhere because we’d be down there in the priority scale.”