If you can’t beat them, join them.
That seems to be the thinking at exchange operator NasdaqOMX when it comes to dark pools and getting back market share lost to these non-public trading venues.
In a report in today’s Wall Street Journal, the exchange operator has approached several of the biggest banks with a proposal to take over the operation of their “dark pools,” and is planning to ask the Securities and Exchange Commission for permission to do so, according to Nasdaq Chief Executive Robert Greifeld.
Dark pools, where the buyside and sellside can conduct more private trading due to the non disclosure of the contra parties and their bids and offers, have come under regulatory and public scrutiny lately. Thanks in part to the Michael Lewis book ‘Flash Boys’ that asserted the equity markets are rigged and the exchanges’ cries that these private venues are less regulated and have an unfair advantage over public exchanges like Nasdaq, BATS Trading or NYSE, dark pools have been under pressure to divulge more information about what goes on in them.
According to the Journal, Nasdaq’s venture into the world off board trading would mark a change of tune of sorts for the bourse. Mr. Greifeld-along with the New York Stock Exchange-traditionally has been a critic of the amount of trading on dark pools, arguing that such trading hurts the ability of markets to operate efficiently and facilitate accurate pricing for stocks.
Greifeld, and his exchange counterparts, have been pushing for a ‘trade-at’ rule, which would force more trading off of dark pools and onto exchanges. He wrote in an editorial in The Wall Street Journal in July 2014 that “no one can argue against the healing power of transparency in the price-discovery process.”
Greifeld, in an interview with the Journal, said that the new initiative was a response to the needs of the company’s customers and not a strategic change.
Banks’ “costs are skyrocketing and our job is figuring out how we can help them solve that problem,” he said.
Nasdaq still would like to see more trading return to exchanges but meanwhile is trying to position itself as a technology partner for banks dealing with growing regulatory scrutiny and technology costs, he added.
Nasdaq’s pitch is simple: Using its technology, surveillance software and regulatory expertise, it can manage dark pools on behalf of banks.
Banks still would be able to trade at lower prices than they do on exchanges, and bank customers still could trade anonymously.
A final business product hasn’t been completed, and plans may change, the company said.
