Dark pool is growing, self-supervision is failing- Reflection on the decentralization of the securities market -Part 18

Therefore, the constraints assumed by existing exchanges and dark pools are obviously asymmetric. Just as exchanges must ensure compliance with securities laws and prevent fraud and manipulation, similar requirements should be explicitly extended to dark pools. Regulators have proposed some measures to require dark pools to disclose more information about the details of their operations. It seems that their role in supervision should also be deepened. In addition, dark pools should conduct more stringent reviews of investors, because of the different access standards between dark pools and exchanges, traders with lower qualifications will use dark pools for potentially risky transactions.

If the market responsibility system is lacking, it will lose the credibility of restraint on bad behavior and supervision of exchanges. Therefore, it is recommended to set up a shared fund funded by the exchange to pay for the loss when a single exchange cannot compensate for the loss. The basis for this recommendation is that in interconnected markets, a single location may not always be able to pay claims. When encouraging collective monitoring and supervision, such funds should include donations from dark pools and exchanges. The fund can support the losses caused by inadequate supervision of exchanges and dark pools to: (1) compensate investors for losses due to the failure of exchanges or dark pools to perform their supervisory duties; (2) reduce the bad incentives of exchanges or dark pools to take risks; (3) force exchanges and dark pools to actively supervise each other.