Bloomberg weighs in on dark pools controversy
A Bloomberg editorial takes up the controversy over dark pools, coming out in favor of some sort of trade-at rule to replace the trade-through rule, which many think has outlived its usefulness. The news is all the more interesting because Bloomberg, which looms as a trading infrastructure power house, owns a stake in Bids Trading, which operates a dark pool.
"To their credit, dark pools have forced the stock exchanges to be more competitive through technological innovation. But the growth of dark pools also reflects the higher operating and compliance costs of their heavily regulated exchange rivals, an obvious benefit for firms such as Goldman Sachs Group Inc., UBS AG and Barclays Plc, which own three of the five largest private trading services.
"All this fragmentation means that buyers and sellers aren't meeting in a central location where information is shared, endangering the price-discovery function on which efficient markets depend."
The exchanges will certainly appreciate the editorial, especially for this: "If this were only a dispute between commercial interests, we could leave the exchanges to duke it out with the dark pools. The reality is that exchanges provide a public service. In the U.S., legislators recognized this in the 1930s, when the first laws governing exchanges and protecting investors were adopted."
True, the public has a vested interest in making sure that stocks trade fairly and equitably for all Americans. But the exchanges are no longer the non-profit entities they once were. They have transformed themselves into massive public companies with shareholders to answer to. Their chief goal is to generate earnings for owners, not to serve the public at large. At times, the twain shall meet. But not always.
It would be unwise to accord the exchanges undue favor based on their rich tradition, just as it would be unwise to tar dark pools because of their scrappy past. In the end, regulators have to understand---and I think they do---that the stock markets are now a collection of fiercely competitive, bottom-line driven companies. The goal is protect investors from getting caught in this Darwinian fallout. This calls for intelligent policy in a way that preserves the market place, albeit in virtual form, and ensures fair access. That's the real public service.
- here's the editorial