A Fiduciary Standard As A Tool For Dark Pool Subscribers

Abstract

Dark pools of liquidity are receiving increasing attention from the media and regulators. As a trading venue mainly for large institutional investors, dark pools offer liquidity and protection from front-running and other predatory tactics used by high-speed trading outfits that result in poor trade execution. However, those institutional investors who use dark pools, referred to herein as dark pool subscribers, are now finding themselves the victims of misconduct within and by dark pools. Moreover, this misconduct is matched with almost no viable recourse, either in statutory or common law, for dark pool subscribers. This paper is divided into three main Parts. Part I provides background on how and why modern dark pools came to exist, how they currently function, and how they are and are not regulated. Part II describes the cases of eBX, LLC and Pipeline Trading Systems LLC as examples of some of the risks that face dark pool subscribers. Part III explains the lack of and need for a remedy for subscribers in cases like those in Part II and proposes that a tailored fiduciary relationship between dark pool managers and subscribers is that remedy