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NYSE Euronext's Jim Ross on the Business of Crossing
Traders Magazine Online News, April 9, 2009
Jim Ross at NYSE Euronext thinks dark pools have come full circle. Crossing systems were an alternative to the exchanges, but now, in his view, a crossing platform within an exchange is the best "alternative to the alternatives."
In the Q&A below, Ross, the head of MatchPoint, the exchange's point-in-time crossing platform, argues that dark pools aren't as revolutionary nowadays as they once were. He suggests that exchanges, confronted with competition, have responded and become more innovative.
MatchPoint exists in the midst of the New York Stock Exchange's continuous market. It executes all stocks, not just Big Board-listed names, and is intended for portfolios and single stocks. It runs crosses seven times intraday and once after the close. Nasdaq also has an intraday and post-close crossing platform for stocks that rolled out in 2007.
To be sure, neither exchange appears to have gained much traction with its crossing system. Nasdaq doesn't disclose its executed volume in the Nasdaq Crossing Network. NYSE's MatchPoint is currently trading 30,000 to 50,000 shares daily, according to Ross, but he predicts the platform will grow as more firms connect. MatchPoint launched its intraday crosses last September but only began actively trading in January. (The 4:45 p.m. after-hours cross launched in January 2008). MatchPoint is for NYSE members but is also available to nonmembers via sponsorship or direct market access through member firms.
Ross joined NYSE Euronext in 2006 when the exchange operator bought MatchPoint Trading, the company he had founded the previous year. Ross had worked at Instinet since 1989, running its global crosses business. He was operating Instinet's after-hours cross on June 13, 1991, the day NYSE launched its first after-hours crossing session, and recalls worrying that it would cut into his business. That didn't happen. Now on the other side of the fence, Ross makes the case that the New York can build a strong crossing business, both intraday and after-hours, for member firms and their wide range of customers. Traders Magazine's Nina Mehta spoke with him in late March.
TM: What's the benefit of MatchPoint over other dark pools and point-in-time crosses?
JR: We're seeing the emergence of the exchange as the full expression of the ATS revolution. Alternative trading systems generated innovative ideas. The exchange facility is where these brilliant concepts are evolving. The exchange facility is the perfect neutral environment for these offerings to be brought into the market mainstream.
TM: For users, what's the benefit of an exchange doing this?
JR: ATSs are segmented and exclusive. There are costs associated with that. People can't find executions unless they string the order out over a period of time, so there's a delay in executing the investment decision. Dark pools contribute to a fragmented, disunited universe that foments liquidity dislocation and drags out the ability to find blocks.
There's also no longer much innovation in the ATS industry that's really impactful. What we're doing will bring some formality and control and centralization of the dark liquidity now hurting investors and investment managers.
TM: Yet there are many ATSs that have clever market structures designed to attract clients with a lot of liquidity and execute their orders with minimal market impact.
JR: Opaque or pseudo-opaque ATSs are commercially self-interested rather than focused on solving problems involving implicit transaction costs. That's not what this revolution has been about. It's been about reducing transaction costs because transaction costs reduce performance. It's ironic that the NYSE is more open and inclusive than the ATS industry, which is more clubbish and isolated--like the NYSE of old.
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