“U.S. securities regulators are considering testing a proposed reform that could drive business to major stock exchanges and away from alternative trading venues such as ‘dark pools’ that critics say may be hurting investors by reducing the quality of pricing,” Sarah N. Lynch and John McCrank report for Reuters. “The proposal, which has so far only been discussed among staff involved in policymaking at the U.S. Securities and Exchange Commission, could limit how much trading occurs inside brokerages and in dark pools, according to people familiar with the matter.”
“The measure aims to address a concern among some regulators and academics about the increasing level of trading that happens outside of exchanges,” Lynch and McCrank report. “They say that the amount of trading being done in the ‘dark’ means that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is, meaning that investors may not be getting the best prices for their trades.”
“The measure under consideration, known as a ‘trade-at’ rule, has long been sought after by exchanges like Nasdaq OMX and the New York Stock Exchange as a way to win back market share against off-exchange competitors such as Credit Suisse’s Crossfinder, one of the largest dark pools in the United States,” Lynch and McCrank report. “The talks within the SEC are at an early stage, and the pilot program would need to be approved by the full five-member commission, as part of an order instructing the public exchanges to carry out the study.”
“If the SEC ultimately proposes a ‘trade-at’ test, it would be incorporated into a broader ‘tick size’ pilot that is being developed to study whether widening the increments, or ticks, at which stocks are priced could incentivize more trading in small and mid-sized companies, the people said,” Lynch and McCrank report. “The people familiar with the agency’s thinking said the move to include a trade-at test in the pilot has some support among the SEC staff. Republican SEC Commissioner Michael Piwowar has been among the most vocal agency members pushing for a tick-size pilot. In February, SEC Chair Mary Jo White also endorsed the idea, saying the pilot would become a reality.”
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