Nasdaq eyes banks' dark pools

HS-buysell-keyboard-image-300x220.jpgNasdaq has offered to take over the running of banks’ dark pools, the exchange’s chief executive, Robert Greifeld, has said in an interview with the Wall Street Journal.

Faced with sliding volumes on traditional exchanges, Nasdaq has approached several big banks and is seeking regulatory permission from the Securities and Exchange Commission (SEC) to do so.

Dark pools - broker-run electronic trading venues operated by many of the largest banks - have become increasingly popular among investors. But they have also drawn more scrutiny from regulators amid fears they are driving demand away from traditional exchanges.

A lack of transparency in dark pools has also led to some critics to say they may be distorting markets.

Mr Greifeld explained the move has been driven by customer demand and that banks’ “costs are skyrocketing and our job is figuring out how we can help them solve that problem”.

Meanwhile, the New York Stock Exchange has also come up with a proposal doing the rounds on Wall Street to curb dark pool trading and keep more activity on regulated exchanges. It would see lower trading fees and end the maker-taker incentive.

“We have been meeting with members of the industry for the past year and trying to facilitate compromise on a key set of issues that investors care about,” Jeff Sprecher, chief executive officer of NYSE parent Intercontinental Exchange Inc, told Bloomberg in December. “We’ve collected input from the investing community ranging from the buyside, issuers, market-makers and sellside and believe it is prudent to use these insights to build consensus to help solve some of the complex issues facing our industry.”

Dark pools have come under much closer scrutiny as their popularity among investors grows. The SEC is embarking on a far-reaching review of market structure that will include looking at dark pools and high frequency trading.

SEC chair Mary Jo White said in June last year that while investors can enjoy benefits from more competition, such as lower fees, there could be too much volume in dark pools.

"The consensus of the research is that the current extent of dark trading can sometimes detract from market quality, including the informational efficiency of prices,” she said.