NYSE Executives: More Regulation Of Dark Pools Needed
By Geoffrey Rogow, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- As the proliferation of dark pools continues to eat
into exchanges' share of trading volume, exchanges may look to Washington for
help.
Executives from NYSE Euronext (NYX) said Tuesday dark pools, electronic-
trading venues where money managers trade large blocks of shares anonymously,
are essentially "free riding" on the stock prices they provide. In addition, as
these dark pools continue to grow in volume, they are making stock prices on
exchanges less legitimate, according to NYSE executives.
Notably, exchanges are regulated under Regulation NMS, which enforces strict
licenses for trading. Dark pools, however, are regulated under Reg. ATS, which
has much less stringent requirements. For example, dark pools don't have to
report volumes monthly, don't have to print bids and offers the way exchanges do
and don't have to identify who's trading what stocks.
"Here, take our exchange license back if we have all these requirements we
don't need," Larry Leibowitz, group executive vice president and head of U.S.
execution & global technology for NYSE, told reporters at a luncheon hosted by
the exchange. Leibowitz noted NYSE officials are in consistent dialogue with
regulators in Washington on their concerns.
Stanley Young, chief executive of NYSE Technologies, notes the proliferation
of dark pools has called into question the price of some U.K.-listed securities.
In this instance, by having such a large amount of volume on a "dark" platform,
the exchange's listed stock price then doesn't become a true reflection of
investor sentiment.
Moreover, the dark pools set their price of a security by looking at the
current exchange-listed price while not actually contributing to the price, an
act NYSE calls "free riding." William Brodsky, chairman of the Chicago Board
Options Exchange and current chairman of the World Federation of Exchanges, has
been a vocal critic of dark pools, charging that they use exchanges' pricing
mechanisms without contributing to the cost of producing those prices.
The WFE is currently investigating dark pools' impact on regulated exchanges.
Exchanges have been negatively impacted by the proliferation of these dark
pools. In April, for example, 22% of average daily stock volume in the U.S. was
either in a dark pool or was executed off exchange by brokers in the "dark,"
according to Tabb Group.
To try to regain some of the lost market share, NYSE Euronext recently
unveiled the New York Block Exchange with broker-dealer BIDS Holdings LP, which
in design acts much like a dark pool.
-By Geoffrey Rogow, Dow Jones Newswires; 201-938-5360; geoffrey.rogow@
dowjones.com
(Jacob Bunge and Rob Curran contributed to this report.)
(END) Dow Jones Newswires
05-19-091623ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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