WASHINGTON—Top U.S. securities
regulators are embracing a plan designed to shift more stock trading onto
exchanges and away from private trading venues operated by banks and other
firms, according to people familiar with the discussions.
The
move, which could deliver a blow to bank trading operations, is expected to be
part of a coming Securities and Exchange Commission pilot program aimed at
boosting trading in the stocks of smaller companies.
The
plan's inclusion in the pilot would mark a small victory in a larger battle
over stock trading between exchanges and operators of so-called dark pools. It
would affect a small amount of trading, but a successful test could be a
precursor to applying it on a broader scale in the future, the people familiar
with the discussions said.
The broader pilot program would widen
"tick" sizes—or the increments between price quotes—for smaller
companies as part of an effort to boost trading in such securities. Supporters
argue that trading in five-cent or 10-cent increments instead of penny
increments would make it easier and more profitable to trade shares of smaller
companies and reduce volatility.
The broader pilot program would
widen "tick" sizes—or the increments between price quotes—for smaller
companies as part of an effort to boost trading in such securities. Supporters
argue that trading in five-cent or 10-cent increments instead of penny
increments would make it easier and more profitable to trade shares of smaller
companies and reduce volatility.
Regulators
are considering adding another provision to the rule that would force privately
run trading venues, including dark pools, to give investors a better deal than
they enjoy under existing regulations. The so-called "trade at" rule
would mandate that trades for certain stocks in the pilot take place on
exchanges unless the private venues offered significant price improvements.
Many big players in the brokerage industry and exchange operator BATS Global
Markets Inc. have said they oppose the idea.
"We
have been clear since day one that we'd like to see a tick-size pilot and we
think it should... not introduce other variables such as trade-at," said
Jim Toes, head of the Security Traders Association, an industry group.
Regulators
are increasingly scrutinizing dark pools as they lure more trading away from
exchanges that publish significantly more information about traders' buy and
sell orders. For instance, the Financial Industry Regulatory Authority, Wall
Street's self-regulator, has opened an inquiry into the way brokers route
customer orders and how they use their own dark pools in executing trades, The
Wall Street Journal reported last month.
Private
venues such as dark pools don't publish buy and sell orders, only reporting the
results of completed trades. In March, 37% of all trading occurred away from
stock exchanges, up from 33% two years ago, according to Tabb Group.
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for the full article in the Wall Street Journal.