NEW YORK – Regulators could stem the migration of U.S. equity trading to dark pools by coordinating a cut in trading fees, an action exchanges are unlikely to take on their own, according to one of the biggest high-frequency firms.
Most exchanges are charging users too much – 30 cents per 100 shares – pushing transactions off public markets to lower-cost private platforms such as dark pools, said Chris Concannon, an executive vice president at Virtu Financial LLC in New York. Regulators should review enacting a blanket reduction of the fees, which would also curb the rebates exchanges pay traders who facilitate transactions, he said.
The system of charging investors for trades while paying brokers, a model known in the industry as maker-taker, is common in the U.S. and elsewhere after market making by humans became less profitable over the last decade. While these pricing systems probably cant be dismantled, there are things you can regulate to mitigate their impact on market structure, Concannon, whose firm provides offers to buy and sell securities on the New York Stock Exchange and dozens of other venues globally, said during an interview.
His comments come amid a debate over whether the $22 trillion U.S. stock market is organized fairly. The new head of the New York Stock Exchange, IntercontinentalExchange Group Inc. Chief Executive Officer Jeff Sprecher, says maker-taker should be examined. All five commissioners of the Securities and Exchange Commission have recently said stock market rules should be re-evaluated.
Most U.S. exchanges charge 30 cents to trade 100 shares, according to research from Deutsche Bank AGs Autobahn trading group. Thats the maximum allowed by the SEC, which set the limit in 2005. Eight years later, 30 cents may be too high compared with lower rates at dark pools, Concannon said.