Dark Pools Here to Stay, Says Broker Conflict Researcher

While money managers don’t always like what happens in the $23 trillion U.S. stock market, they’re too fond of dark pools to let them go extinct, according to a professor whose research was presented to the Senate.

“Dark pools have existed forever,” Robert Battalio of the University of Notre Dame said in a phone interview last week. “You can shut down these dark pools and just new forms will arise somewhere else.”

Brokers and mutual funds disconnected last week from one of the private trading platforms, owned by Barclays Plc (BARC), after New York’s attorney general said the London-based bank lied to customers and masked high-frequency traders in its LX dark pool. The migration doesn’t mean dozens of others aren’t providing a useful service to investors reluctant to use public exchanges, Battalio said.

“There are bad dentists out there, there are bad store clerks, so you’ve got to separate the structure from the bad apple,” Battalio said. “Order flow will always have multiple venues to execute on — upstairs markets — because one size doesn’t fit all.”

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