Investor Relations

Nasdaq Offers to Run Unregulated ‘Dark Pools’

After previously backing regulations that would move dark pool trades onto exchanges, Nasdaq OMX now says it wants to run the pools for banks.
Katie Kuehner-HebertJanuary 12, 2015
Nasdaq Offers to Run Unregulated ‘Dark Pools’

Nasdaq OMX Group Inc. Chief Executive Robert Greifeld is trying to entice banks to let Nasdaq operate their private trading “dark pools,” says the Wall Street Journal.

While Greifeld still would like for the Securities and Exchange Commission to consider a “trade-at rule” that would force more trade off of dark pools and onto exchanges, he told the WSJ that the new pitch to banks was not “a strategic change.”

Rather, Greifeld contends Nasdaq is responding “to the needs of the company’s customers,” as banks’ “costs are skyrocketing and our job is figuring out how we can help them solve that problem.” As such, Nasdaq is attempting to position itself “as a technology partner for banks dealing with growing regulatory scrutiny and technology costs.”

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Dark pools were created to minimize price impacts from investors trading large blocks of stock, as well as to avoid exchange fees, WSJ wrote. But the private venues have since expanded with an increased volume of smaller trades, making them more similar to exchanges—but without similar regulatory scrutiny.

A Reuters article on Monday says that dark pools enable investors to trade anonymously and only make trading data available after a trade, which lowers the ability for other investors to learn about their intentions and “move the price against them.”

Regulators are increasingly scrutinizing the private venues for taking too much volume away from exchanges, thereby making it more difficult for investors to see demand and potentially distorting prices, Reuters wrote. SEC chair Mary Jo White is expected to propose new rules requiring the alternative trading platforms be more transparent.

UBS AG, Credit Suisse Group AG and Deutsche Bank AG operate the three largest dark pools in the United States, while Citigroup and Wells Fargo & Co. shuttered their dark pools, according to WSJ.

According to Reuters, BATS Global Markets is also talking with banks about outsourcing their dark pool operations.

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