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Research from capital markets research and consulting firm TABB Group Europe revealed that 86% of investors were seriously concerned about the proposed restrictions of volume caps of dark trading from 4% to 8%. Latest proposals by politicians in Europe to restrict dark trading at 4 and 8% have the potential to inadvertently create greater opacity as well as seriously impact institutional investors' ability to execute order flow.

Wired magazine defines dark trading as the buying and selling stock in pools established by investment banks like UBS and Goldman Sachs. Because it is done outside the public view, clients are able to exchange stock at high volumes without significantly moving the market.

Rebecca Healey, senior research analyst at TABB who authored the report, said the increase in automated dark trading venues and the decline in bilateral over-the-counter trading has resulted in more autonomy for traders from brokers. This has allowed them to maximize investors' returns. She said that the rising use of FIX Protocol tagging, venue analysis as well as Transaction Cost Analysis or TCA offered more transparency post-trading. This has provided the appropriate level of transparency at pre-trading without putting a negative impact on the process of institutional trading. She adds that this arrangement has provided the buy side improved choice in the selection of venue.

Healey explained that dark trading has always existed. The difference now, however, is that the buy side is choosing to control when, where and how to execute orders. Before, the buy side turned de facto to the sell side to execute a block on their behalf, she said. Healey said, "As such, 98% of institutional investors tell us that they now prefer to access alternative liquidity pools in their hunt for anonymity and reduced market impact."

In addition, the reduction in risk capital available for many buy-side participants in Europe is also one reason why institutional investors prefer the protection, price improvement and liquidity that they can find in the dark pools. For Healey, regulation would attain more transparency by clarifying the rules while still maintaining the choice for the investors' benefit instead of totally eradicating dark pools.