From 2008 through 2010, big banks expanded their dark pools by using them as the first destination to which their trading desks routed orders, Justin Schack, a managing director and partner at Rosenblatt in New York, said in a phone interview.
“A lot of what they used to internalize in their upstairs business they now systematically internalize in their dark pools,” Schack said. “It took some firms quite a while to get every customer desk, principal desk and proprietary trading desk to prioritize their internal dark pool first.”
By contrast, the profit margins at futures exchanges like ICE have been higher than those of stock exchanges because there’s less competition because of different regulatory structures, said Justin Schack, managing director at Rosenblatt Securities.
For instance, if someone buys 100 shares of General Electric on the NYSE, he or she can sell them on Nasdaq. But the clearinghouses that settle the trades for futures exchanges are not required to accept trades in the same product from competing exchanges. “It’s easier to defend your turf in the futures market,” Schack said.
"ICE might cut costs, but I don't really see the trading experience changing," said Justin Schack, managing director at brokerage firm Rosenblatt Securities in New York.
Top exchange executives on Tuesday raised concerns about the proliferation of dark pool markets at a Senate hearing, arguing that continued flow of trades to the opaque trading venues could be a disadvantage to the overall markets and retail investors.
In the wake of a settlement with the Securities and Exchange Commission in early October, the number of shares traded in the Level ATS dark pool operated by eBX LLC dropped by more than half, according to a recent report.
New rules limiting dark pool use in Canada have had an immediate impact on non-displayed volumes, according to figures from boutique brokerage Rosenblatt Securities.
The leading US stock exchanges have had a difficult year, and there are few signs to suggest business is going to recover. For a fourth consecutive year, equity volumes on the US market are set to decline, so placing pressure on the bottom line at New York Stock Exchange and Nasdaq. The growing portion of transactions has shifted to private trading venues such as dark pools, where trades are posted to the public market only after they have occurred.
The hottest new thing on Wall Street is cooling down. High-frequency trading firms — the lightning-quick, computerized companies that have risen in the last decade to dominate the nation’s stock market — are now struggling to hold onto their gains.
Speculation has already begun regarding the upcoming Securities and Exchange Commission roundtable on technology and its impact on the equities market. Market structure professionals are mixed as to whether the confab will produce some sort of best practices rule or is it primarily a fact finding mission.
Final approval of a bid for the operator of the Toronto Stock Exchange opens the door to a bigger role for the new entity in the global exchange industry, with expanding into U.S. markets apparently first on the agenda.