Finance: Off-exchange Trading Venues

Lord Bilimoria Excerpts

Monday 18th July 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am no great expert on dark matter and black holes, but I think the distinguishing point about dark pools is that they are a venue for trading that enables confidential orders to be submitted and matched using a reference point that comes from a transparent market. As soon as the trade is done, the details are reported publicly. Therefore, there is confidential trading and then full reporting, which is the critical feature of the market. Various platforms are available for the market, which accounts for something of the order of 7 per cent of UK and European equity trading. It is not a dominant part of the market by any means, but it is one that we are watching.

[Lord Bilimoria]

My Lords, one of the best moves in the mid-1990s was the creation of the alternative investment market, AIM, which has been a great success. I was a director of an AIM company that is now a FTSE 250 company. However, the biggest problem with AIM was always liquidity. Liquidity is an also issue outside the FTSE 250 on the main market. Can the Government do something to improve liquidity? Should more be done or are they happy with the situation?

[Lord Sassoon]

My Lords, I certainly agree that mechanisms that help liquidity such as dark pools, which are run by investment banks, multilateral trading facilities or independent operators, are indeed aids to liquidity if they form a proper part of the market. The proponents of high-frequency trading, too, cite them as an aid to liquidity. I completely agree with the noble Lord, Lord Bilimoria, that the last thing we want for example the European Commission to do is to restrict sensible increases in liquidity in our markets without looking at the evidence base that needs to be assembled.