UPDATE: Nasdaq Details Plan To Strike Back At 'Dark' Trading
10 Maggio 2012 - 7:55PM
Dow Jones News
Nasdaq OMX Group Inc. (NDAQ) is planning a range of new
stock-trading services designed to strike back at private trading
platforms like "dark pools," escalating the competition for stock
orders of retail-level traders and institutional investors.
The New York exchange group in the coming months will roll out
new strategies for buying and selling large chunks of stock and
introduce split-second electronic auctions geared to improve the
prices that individual investors receive on their stock trades,
senior executives said Thursday.
The moves are geared toward recapturing share-trading business
lost to banks and trading firms that run private stock markets that
in many cases have become the first stop for orders of mutual funds
and retail brokerage firms seeking to minimize the cost of doing
business in the U.S. stock market.
"These are products that are really designed to take flow back
from dark trading," said Eric Noll, head of transaction services
for Nasdaq OMX, speaking to investors at a presentation in New York
on Thursday.
Nasdaq OMX and other exchanges have ceded ground to dark pools
over the past three years, as the overall level of stock trading
has diminished and volatility generally has declined. Those factors
have made it easier for institutions like mutual funds to complete
big trades away from exchanges, because publicly available prices
are less likely to quickly shift away from those being offered on
private platforms.
Earlier this year the level of off-exchange stock trading
crested above 34% of the U.S. market, and this month stands at
approximately 32%. Nasdaq OMX's overall market share currently
stands at 22%, according to data from BATS Global Markets.
The efforts outlined by Noll on Thursday, which require approval
from regulators before they can be introduced, could collectively
add as much as 10% to Nasdaq OMX's market share, he said.
The company's planned "retail investor auction" program would
counter a similar proposal put forth by rival NYSE Euronext (NYX)
late last year. Both moves seek to pull individual investors'
trading back onto exchanges.
The Nasdaq OMX program would run competitive "auctions" among
market-making firms throughout the day in an effort to give an
investor seeking to sell shares a higher price, or provide a lower
sale price for a retail trader aiming to buy stocks. The auction
idea draws from the options market, where exchanges run similar
programs, Noll said.
By July, Nasdaq OMX separately aims to introduce a range of
trading strategies that mimic those offered by brokers to
institutional clients, designed to parcel out big stock orders to
avoid tipping off faster-moving traders who could rapidly drive the
price of the shares being transacted higher or lower.
"We're going to do it cheaper than [broker-dealers] can do it
and offer it in a quick, transparent way to the customer base,"
Noll told investors. If investors pick up on the strategies, it
could add 3% to 7% to Nasdaq OMX's slice of the U.S. stock market,
he said.
Nasdaq OMX is refocusing on the business of individuals and
institutions at a time when Noll said that high-frequency trading
firms are becoming less significant players on the company's
markets.
Wall Street banks like Morgan Stanley (MS), Bank of America
Merrill Lynch and Barclays PLC (BCS, BARC.LN) have now taken the
lead role in providing liquidity to Nasdaq OMX's platforms, a
reversal from five years ago when high-speed proprietary traders
were the main suppliers of prices, according to Noll.
High-frequency firms, meanwhile, have trimmed their business due
to a broad decline in volatility, he said. Rapidly fluctuating
prices provide a key venue for fast-trading firms to make
profits.
"We're seeing [high-frequency trading] become a less and less
important part of our business," Noll said. "To a large extent the
marketplace is maturing."
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
jacob.bunge@dowjones.com; Twitter: @jacobbunge
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