(Bloomberg) — Ridding the U.S. stock market of dark pools would be the wrong move, though it wouldnt be disastrous, said Bob Jain, Credit Suisse Group AGs global head of asset management.
The current controversy over the functioning of stock markets is overblown, said Jain, who ran the Zurich-based banks equities business for almost four years until late 2012. Until it stopped reporting data last year, Credit Suisses dark pool was ranked as the largest in the U.S.
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If dark pools went away it wouldnt be the end of the world, but I dont think that would be the right structure for the equity markets, Jain said in an interview today with Bloomberg Televisions Erik Schatzker and Stephanie Ruhle at the Milken Institute 2014 Global Conference in Beverly Hills, California.
Jains comments came amid unprecedented scrutiny of U.S. stock markets in the wake of investigations by state and federal authorities and the publication of author Michael Lewiss Flash Boys. Securities and Exchange Commission Chairman Mary Jo White discussed market structure in testimony today before a Congressional committee.
I dont think this is as big a story as everyones making it out to be, Jain said on the Market Makers program. The SECs doing a very good job here of saying,Were going to take a data-driven approach to this.
Jain now runs a unit that oversees roughly $420 billion. He said he thinks small investors benefit from the structure of todays $22 trillion U.S. stock market. Dark pools are venues where customers orders are executed privately instead of being sent to public exchanges.
Market Fix
Terrence Duffy, executive chairman of CME Group Inc., operator of the worlds largest futures exchange, told Bloomberg News last week that killing dark pools would fix the stock market because it would ensure all trading takes place on transparent exchanges. At a Milken panel yesterday, Jamil Nazarali, head of Citadel LLCs execution services unit, said the U.S. is one of the few markets in the world where the little guy gets a better deal than the big guy.
In her testimony before the House Financial Services Committee, White faced questions from lawmakers about criticism of the SECs oversight of stock markets and automated trading strategies. The agency has faced a surge of pressure since Lewiss book depicted a stock market in which high-frequency traders profit by preying on slower investors.
We could not be doing a more intensive review of all of the issues, White said, adding that she couldnt disclose when the SEC would issue recommendations for new rules.
Bad Branding
Jain said that while he doesnt believe high-speed traders are a concern, a slower market would probably be better.
If everyone said Were slowing everything down, if technology came out of the system, it would actually be a benefit for everyone, he said. The high-frequency system is fine but I dont think speed is that relevant.
One of the issues with the debate about the market and its participants could be branding, Jain said. The wording has been very bad — dark pools, high-frequency trading, he said. It just makes everyone sound a bit nefarious.
