When the 5th largest dark pool trading venue (by volume) in America is shuttered, as Citi notes because its “capital, resources and efforts would be better redeployed elsewhere,” you know there is a problem in US stock trading volumes and liquidity. Everyday we get ‘glimpses’ of this collapse – most recently yesterday’s AAPL flash-crash – as human traders (who provide the ‘fish’ for the machines) disappear and HFT liquidity-providers pull liquidity in a flash. Crucially, as we hinted previously, we wonder if the large firms are exiting the dark pool business before some engineered market collapse is pinned on these opaque ‘markets’ who have come under increased regulatory scrutiny.
The demise of LavaFlow…
And a more detailed view of the top dark pools in context courtesy of Nanex:
A private trading venue owned by Citigroup will pay a $5 million penalty to settle charges that it failed to protect customers’ data, marking the latest case in a crackdown by U.S. regulators over alleged market rule violations. Flash Boys Best Price: $1.17 Buy New $5.79 (as of 11:15 EST - Details)
The Securities and Exchange Commission said the unit, LavaFlow Inc., is settling the civil case without admitting or denying the charges.
The SEC said LavaFlow failed to put adequate safeguards and procedures in place to protect its subscribers’ confidential trading information from March 2008 through March 2011.
The SEC’s prior three cases against ATS venues were targeting a type of platform known as a “dark pool,” which lets investors trade anonymously and does not publicly display quotes. Dark Pools: The Rise o... Best Price: $6.32 Buy New $11.74 (as of 06:25 EST - Details)
LavaFlow is distinct in that it is not a dark pool. Rather, it operates as an “electronic communications network,” or ECN, a trading venue that displays some information about pending orders in the system.
Citigroup Inc said on Tuesday it is shutting down its alternative stock trading venue LavaFlow at a time when regulatory scrutiny around broker-run trading platforms has increased, forcing banks to rethink their costs.
“Following a recent review of the LavaFlow ECN, we have decided that our capital, resources and efforts would be better redeployed to other areas within Citi’s Equities Division,” Citi said in a statement.
Reprinted with permission from Zero Hedge.
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