The FCA has published Occasional Paper 21, Asymmetries in Dark Pool Reference Prices.
The Occasional Paper sets out the findings of a study that looks at two important aspects of reference prices in dark pools – the prevalence of reference price latency and primary market choice as the reference price’s source. For both aspects the effect for different classes of market participants were measured to analyse the role of participant speed and sophistication in driving outcomes in markets.
Generally the study finds that there is evidence that major UK dark pools sometimes experience delays in receiving prices, but overall, the costs associated with inferior prices are small, and do not outweigh the useful service dark pools provide.
The study notes that MiFID II will require microsecond granularity and maximum timestamp divergence of 100 microseconds for venues with less than one millisecond gateway to gateway latency. The authors of the Occasional Paper suggest that it would seem from the analysis conducted that market data latency regularly exceeds this threshold. Timestamps relating to a trade could be time-stamped at several locations within the trading process, and each will be affected by latency differently, and result in different timestamps. The location of timestamping is not specified in the latest draft MiFID II technical standards.
View UK dark pools and reference prices, 15 September 2016