On a conference call with reporters this afternoon, Sen. Chuck Schumer (D-NY) and New York Stock Exchange CEO Duncan Niederauer called for better government regulation of alternative trading systems like dark pools — which are essentially opaque, off-exchange places where large amounts of stock are traded.
“They should be required to adhere to a more robust regulatory framework,” Schumer said.
Schumer said that such alternative trading systems accounted for just 9 percent of the equities market in 2001 — but account for 35 percent today.
The SEC will hold a meeting tomorrow at which it’s expected to address dark pools. Schumer said he’s also sending a letter to SEC Chair Mary Schapiro pushing regulatory reform for dark pools.
TPM asked Schumer whether he plans to take any other action beyond sending a letter to Schapiro. “We’ll see,” he said. “Let’s see what she does first.”
TPM also asked whether Schumer’s Democratic colleagues in the Senate agree with him on this issue.
“I have not discussed this letter with many of my colleagues at this point,” Schumer said. “But if I did, I think many of them would be favorably disposed.”
Schumer said he used to support alternative trading systems “because you’ve got to have innovation” — but said unregulated dark pools have now grown to a point where they “undermine market transparency.”
“They can compromise the market’s fundamental function of price discovery,” Schumer said.
It’s time that we give this a second look. We must account for their potential risks.
Of course, it’s not all about transparency and risk. Dark pools take business from traditional stock exchanges like the New York Stock Exchange — not an unimportant consideration for a New York senator.
“I think this is the right thing to do no matter what it’s effect,” Schumer said, adding a moment later that, “when New York has an unfair advantage it shouldn’t have it, but here New York is at an unfair disadvantage.”
