(Bloomberg) — The New York Stock Exchange is working to marshal Wall Street support for a plan that would overhaul features of the U.S. stock market that have drawn criticism from investors in the past year.
A draft proposal circulated by NYSE among investors and brokers seeks a grand bargain across the industry, according to a person who saw it who asked not to be named. The arrangement would include curbs to keep most trades off private venues such as dark pools and agreements by exchanges to cut trading fees and stop an incentive system known as maker-taker.
NYSE hopes to win enough support to take the plan to regulators for formal approval, according to brokers who have spoken to exchange officials. Credit Suisse Group AG, which runs the biggest U.S. dark pool, backs the NYSE proposal, according to people familiar with the matter.
We have been meeting with members of the industry for the past year and trying to facilitate compromise on a key set of issues that investors care about, Jeff Sprecher, chief executive officer of NYSE parent Intercontinental Exchange Inc., said in an e-mailed statement. Weve collected input from the investing community ranging from the buyside, issuers, market- makers and sellside and believe it is prudent to use these insights to build consensus to help solve some of the complex issues facing our industry.
A year ago, Intercontinental Exchange bought the NYSEs parent company, and Sprecher has ever since promoted ending the status quo in the $23 trillion U.S. equity market. The three stock exchanges ICE owns handle about one-fifth of U.S. equity volume. Exchanges owned by Nasdaq OMX Group Inc. and Bats Global Markets Inc. handle roughly the same amount, while close to 40 percent of volume takes place on private venues such as dark pools.
Simplifying Market
That network of trading platforms could be simplified by the NYSE plan. The proposed curbs on trading in dark pools, known as a trade-at rule, would keep most routine stock trades on exchanges, where bids and offers for shares are public. Critics argue that having dozens of trading platforms makes the market too complicated and opaque.
Spurred by regulatory changes, NYSE has lost its grip on U.S. trading. A decade ago, it handled about 80 percent of trading in the corporations it listed. Nasdaq has also seen its market share dwindle.
One way exchanges try to attract volume is paying rebates to liquidity providers, the system known as maker-taker. Critics contend this unfairly influences where brokers decide to send orders to trade stocks. The NYSE proposal would eliminate maker- taker, according to the person who saw the plan.
When fees and payments are not passed through from brokers to customers, they can create conflicts of interest and raise serious questions about whether such conflicts can be effectively managed, Securities and Exchange Commission Chair Mary Jo White said in a June 5 speech.
Lower Fees
The NYSE proposal would cut exchange trading fees to 5 cents per 100 shares from the current 30 cents, according to the person who saw the memo. Trades of at least 5,000 shares would be exempt from the trade-at rule, meaning they could keep trading on dark pools just as they always have.
At an event organized by Representative Scott Garrett, a New Jersey Republican, and other House lawmakers in May 2013, Credit Suisse executive Dan Mathisson said he could support a trade-at rule if combined with a large decrease in the fee. Nicole Sharp, a spokeswoman for the bank, declined to comment on the NYSE proposal.
NYSE also suggests having brokers more involved in the governance of the public and private data feeds that serve as the backbone of trading, people familiar with the matter said.
Sprecher, along with a group of about 15 industry executives, met with members of the Securities and Exchange Commission in February, Bloomberg News reported at the time. The group asked commissioners to conduct a pilot program to test whether stocks would trade differently without maker-taker.
The stock market has come under unprecedented scrutiny this year, with the SEC, Justice Department and New York attorney general all investigating possible abuses. One of the years best-selling books, Michael Lewiss Flash Boys, portrayed a market where individuals are taken advantage of by Wall Street insiders.
