UPDATE: NYSE Teams With Dark Pools To Boost Transparency
October 20 2009 - 12:36PM
Dow Jones News
NYSE Euronext (NYX) has teamed with five operators of
alternative-trading systems for a new venture that will pull back
the curtain on trading activity in so-called dark pools.
The announcement came Tuesday as NYSE Euronext Chief Executive
Duncan Niederauer and Sen. Charles Schumer (D., N.Y.) called on the
Securities and Exchange Commission to consider new rules for the
trading platforms.
Dark pools are private venues where large blocks of stock are
traded electronically and have been targeted by regulators seeking
a better idea of how much trading takes place away from
exchanges.
On Wednesday, the SEC is slated to hold a meeting focused on
alternative trading systems' role in the U.S. stock market, with
regulation proposals likely.
NYSE's new venture, announced just ahead of that meeting
Tuesday, will next month begin printing trades on the
trade-reporting facility operated by NYSE Euronext and the
Financial Industry Regulatory Authority, or Finra, with the daily
trading activity of each venue also displayed on NYSE Euronext's
Web site.
The idea is to shed light on a handful of dark pools that are
estimated to make up as much as 4.5% of the U.S. equity market,
according to a Rosenblatt Securities Inc. report; overall, the
venues are estimated to account for about 9% of U.S. stock
trading.
Regulators, including SEC Chairman Mary Schapiro, have
repeatedly stated that a lack of transparency in dark pool
reporting is of paramount importance in any possible regulation.
Leading up to Wednesday's meeting, regulators have been meeting
with representatives from all facets of the dark pool trading
community.
"I'd be surprised if this wasn't the result of conversations
with the SEC and what they'd like to see," said Greg DePetris,
founder of stock-lending platform Quadriserv Inc., speaking on the
sidelines of an industry event in New York.
Steve Chmielewski, chief operating officer of Jones Trading
Institutional Services LLC, added that similar moves are likely to
take place often in the coming months, as the SEC moves forward in
its evaluation of broader growth in high-frequency trading.
Instead of waiting for official rules to come from the SEC, dark
pool administrators, exchanges and others will be looking to make
moves "so the regulators don't have to."
High-frequency trading, driven by computer programs, seeks
profits through rapid-fire transactions across multiple exchanges
and trading venues.
Incumbent exchanges NYSE Euronext and Nasdaq OMX Group Inc.
(NDAQ) have both ceded business to alternative trading systems in
recent years, and executives have expressed concern that dark
pools' growing share of the market could distort prices set by
displayed venues.
But NYSE Euronext has also sought to partner with certain dark
pool operators, this year introducing a service from Liquidnet that
lets companies know when their stock is seeing active trade on that
firm's non-public market, and teaming with broker-dealer BIDS
Holdings LP to develop the New York Block Exchange.
In Tuesday's initiative, NYSE said has joined with Barclays
Capital, Getco, Goldman Sachs Group Inc. (GS), Knight Capital Group
Inc. (NITE) and UBS AG (UBS). Additional operators of alternative
trading systems are in talks to join up, according to NYSE
Euronext.
"This initiative is an important step toward the standardization
of trade volume reporting across ATS venues," said Frank Troise,
head of equities electronic product for Barclays Capital, in a
statement.
- By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com;
and Geoffrey Rogow, Dow Jones Newswires; 212-416-2179;
geoffrey.rogow@dowjones.com
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