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September 2, 2013

Snipers

By Peter Chapman

Early in my career at this magazine, I used to interview a lot of Nasdaq market makers and New York Stock Exchange floor traders. While some were critical of the venues at which they quoted and traded, most strongly identified with the organizations. They were "members" of the two marketplaces, after all. Nasdaq and the NYSE were their marketplaces.

Now, unless you've been living in a yurt for the past two years, you know that is no longer the case. Those traders still left on the floor of the NYSE still champion their marketplace, but much of the sellside views the exchanges as competitors. By the same token, exchanges view broker-dealers and their dark pools as competitors. Both sides are going public with their discontent and things are getting a little heated.

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The sellside ratcheted up the rhetoric last month when industry lobbiest SIFMA sent a letter to the Securities and Exchange Commission asking the regulator to consider eliminating the exchanges' self-regulatory status. Exchanges and brokers are competitors, SIFMA argued, and should be on a level playing field. Removing the protections their SRO status gives them would be a step in the right direction. In a Bloomberg article, NYSE Euronext immediately shot back. The exchange operator called it a bad idea suggested by "conflicted" brokers looking to "generate additional profits."

For its part, NYSE has been outspoken in its criticism of trades done by brokers away from exchanges in dark pools and within brokers' wholesaler divisions. The practice is bad for price formation, NYSE argues. Those charges appear to be producing results, as FINRA recently stated it would propose a new rule requiring brokers to make public the number of shares traded in their dark pools. Whether that leads to any curbs or disincentives to off-board trading remains to be seen. Pressure on the exchanges by the brokers may be producing results as well. Nasdaq recently asked the SEC for permission to bring more regulation in-house, and take it away from FINRA, which has been conducting much of Nasdaq's market surveillance.

Will all this lead to any SEC-driven regulatory changes? For the past four years, the SEC has been too busy with Dodd-Frank to address complaints about market structure. Now, however, the commission has a new chairman, who has vowed to take a look-see.

Speaking of change, longtime readers of Traders Magazine will notice we've redesigned our pages. We've improved the look with a more contemporary layout, more data points and information graphics, and an online table of contents that promotes the rich set of articles and insights we post each day to our website. Our focus, however, hasn't changed. We remain committed to producing the most timely and interesting news and analysis about the business of trading.

 

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