When the Great Financial Crisis erupted six years ago, “transparency” became a buzz word. No wonder. As banks imploded, policy makers and voters were shocked to discover the sordid practices that had proliferated in the worlds of derivatives and debt – concealed by a culture of opacity.
Now an irony hangs over finance. Since 2008 regulators have battled to make credit and derivatives markets more transparent. While progress has been patchy, investors can now access once-unimaginable levels of information about trading patterns in markets for credit derivatives or bond prices. Even the swamp of swaps trading is – belatedly – becoming less opaque.
However in the equity sector – which used to be more transparent than the credit market – the trend has been moving the other way. A decade ago there was a considerable amount of information available about equity prices and trading volumes, since most activity took place on centralised exchanges. Now, more than a third of equity trading in the US and Europe is conducted outside the main exchanges. There has been an explosion of activity in so-called “dark pools”, or fragmented private trading venues run by banks and other institutions, that match buyers and sellers directly.