The chief executives of the three largest stock exchanges are joining forces for the first time to push regulators to rein in the increasing amount of trading that is moving off public exchanges and onto platforms like so-called dark pools.
The leaders of the New York Stock Exchange, Nasdaq and BATS Global Markets, the third largest exchange operator, are planning to meet on Tuesday with officials of the Securities and Exchange Commission, according to people briefed on the meeting.
The officials will be pushing regulators to step up their oversight of private trading platforms such as dark pools, which are generally owned by banks and allow investors to trade out of the public eye, the people said. As the amount of trading taking place away from the public exchanges has grown rapidly, regulators have been examining whether dark pools create an uneven playing field for some investors.
The exchanges have been relatively restrained in publicly criticizing off-exchange trading because the banks that run the dark pools are also among the largest customers of the exchanges. Cooperation among the exchanges has also been difficult because of their fierce competition.
The exchange executives are said to have been motivated to step up their opposition now because the amount of trading away from exchanges has been steadily creeping up and has accounted for as much as 40 percent of all trading on some recent days, according to data from Rosenblatt Securities. Another motivation for the exchanges is the turnover in leadership at the S.E.C., including the new chairwoman, Mary Jo White, who was confirmed by the Senate on Monday.
The chief of the Nasdaq OMX Group, Robert Greifeld, and the chief of NYSE Euronext, Duncan Niederauer, have individually voiced their concerns about trading migrating away from the exchanges, but their comments have not involved any unified set of proposals to deal with the issue. The chief of BATS, Joe Ratterman, until now has almost entirely avoided public statements about dark pools and off-exchange trading.
On Tuesday, the exchange executives are expected to propose some version of the “trade at†rule, which would allow a trade to occur away from an exchange only if the customer was getting a significantly better price than was available on an exchange.
“If the heads of the country’s biggest exchanges are all getting together to raise the issue it just underscores how important this is to the markets and to these companies specifically,†said Justin Schack, a managing director at Rosenblatt Securities.
Spokesmen for the exchanges would not comment on the meeting.
Australian and Canadian regulators have taken steps in recent months to limit off-exchange trading in their markets. The S.E.C. put out a release in 2010 proposing new rules for dark pools, but the agency has not taken any action since then.
While dark pools are coming under particular scrutiny, the exchanges have also been criticized for the role they have played in the increasing complexity and fragility of the nation’s stock markets. Both Nasdaq and BATS suffered significant technology mishaps last year that dented confidence in the markets.
Not all off-exchange trading happens in dark pools. Many trades made by retail investors are sent to firms, known as internalizers, that pay to trade with the orders before they reach an exchange.
At a Senate hearing in December, Eric Noll, the head of market structure issues at Nasdaq OMX Group, said that past S.E.C. regulations “led to an increase in dark trading, which denies market participants a clear view of trading interest in a given stock.â€
A few academic studies have found that when trading in the dark increases, traders compete less aggressively to provide good prices to investors on the exchanges.
