SEC Approves NYSE ‘Dark Pool’ Program

by Christopher Freeburn | July 6, 2012 12:55 pm

Attempting to offset declining market share, the New York Stock Exchange has received SEC approval to launch a test program under which certain orders will not be displayed[1].

Under the new program, NYSE Euronext (NYSE:NYX[2]) will establish a new group of liquidity providers that will be permitted to conceal the bids of small investors whose bids out-price general market bids, Bloomberg notes.

The program, which aims to lure back individual investors to the NYSE, will commence on August 1.

The NYSE has been losing trades to so-called dark pools, private trading exchanges that conduct trades but don’t list prices for bids and offers prior to the trades. Dark pools also have fewer regulatory burdens compared to public exchanges like the NYSE.

Dark pools have become so popular among individual investors that the NYSE now handles only about a quarter of trading for companies listed on the NYSE, down from 83% in 2003.

Despite the new SEC-backed program, experts say the NYSE isn’t running a dark pool since the treatment of retail segment customers is still regulated by the SEC, unlike dark pools which can treat customers as they like.

Still, the move is clearly meant to blunt the allure of dark-pool trading. Individual traders account for roughly 10% of equities trading. The new program will create a “sub-penny market” inside the exchange in which orders won’t be displayed, one analyst told Bloomberg.

  1. a test program under which certain orders will not be displayed:
  2. NYX:

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