U.S. stock exchanges call for new rules on 'dark pools'

Tue Apr 16, 2013 12:05pm EDT
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By John McCrank

NEW YORK, April 16 (Reuters) - The chief executives of three major U.S. stock exchanges have called on U.S. regulators to take steps to reduce trading taking place away from public exchanges, saying the opaque practice is hurting market quality.

Departing Securities and Exchange Chairwoman Elisse Walter, along with SEC staff members, met with Nasdaq OMX CEO Bob Greifeld, NYSE Euronext CEO Duncan Niederauer and BATS Global Markets CEO Joe Ratterman on April 9, according to a SEC filing dated April 10.

The exchanges made the case that higher off-exchange trading volumes are hurting market quality by creating wider trading spreads and increased intraday volatility, according to a copy of their presentation copied in the filing.

The meetings highlight a growing sense of urgency at the exchanges about the increasing amount of trading by-passing their venues and going instead to so-called dark pools and internalizers.

Dark pools are trading platforms where buyers and sellers of stocks remain anonymous and their orders are hidden until they are executed. Internalizers are brokers that match orders within their own firms, allowing them to avoid exchange fees.

The exchanges have long argued that the rise of off-exchange trading distorts prices in the public markets and makes the markets in general less transparent.

The exchanges pointed to rules in Canada implemented in October that require dark pools to offer meaningful improvement on the prices quoted on the public markets, or to require a minimum size threshold for off-exchange orders.   Continued...