The latest joint Canadian Securities Administrators/Investment Industry Regulatory Organization of Canada report on “dark” trading doesn’t deal with some of the other structural issues that were raised in a previous paper published last year and discussed in a followup forum earlier this year. For example, the recent report doesn’t address the practice of dark pools using “indications of interest” to attract order flow; nor does it tackle fairness issues involving the use of “smart order routers”; or the subject of broker “preferencing” (the practice of allowing brokers to match their own incoming orders ahead of orders from other dealers).

The regulators haven’t forgotten these issues. They indicate that the use of IOIs and SORs will be addressed in a separate CSA project updating the requirements for alternative trading systems and exchanges, expected to be published in early 2011.

Broker preferencing also will be addressed in a future regulatory initiative, the regulators note. They indicate there are sharply divided opinions on this issue, ranging from those who believe broker preferencing is inherently unfair to those that say it doesn’t hurt markets at all.

The regulators have concluded that they don’t have sufficient data to rule on the issue, so they intend to publish a request for information “in order to … evaluate broker preferencing and its impact.”

The regulators have indicated that they will be publishing a number of regulatory proposals in the months ahead that deal with some of these market-structure issues, including dark pools, electronic trading and the regulation of marketplaces.

— JAMES LANGTON