NYSE Euronext took a minority stake in alternative trading system BIDS Trading.
According to documents filed by the exchange with the Securities and Exchange Commission last month, a wholly-owned subsidiary of the exchange, NYSE Market, Inc., bought 8.57 percent of BIDS in February. In so doing, the exchange joined a large list of the industry’s biggest broker-dealers with stakes in BIDS.
The NYSE filed the documents with the SEC as part of the regulatory approval process surrounding the establishment of New York Block Exchange LLC (NYBX), a 50-50 joint venture between the exchange and BIDS.
The partnership will own and the NYSE will operate an electronic trading system that combines the anonymous trading of the BIDS dark pool with the displayed and undisplayed liquidity at the NYSE. NYBX is slated to launch in January.
Under the joint venture proposal, BIDS would become a member of the New York Stock Exchange, a fact which could put the NYSE in violation of one of its rules.
The combination of the NYSE’s stake in BIDS and BIDS’ membership in the exchange would cause the exchange to violate its Rule 2B which prevents the exchange from taking a stake in a member organization. Also, members are prohibited from becoming affiliates of the exchange.
To get around these rules, the NYSE has asked the SEC for an exemption to 2B with respect to the investment in BIDS.
The SEC has previously expressed concerns over possible conflicts of interest if the exchange is affiliated with one of its members. The regulator is concerned the member could have an information advantage over other NYSE members because of the relationship.
In its filing, the NYSE pledged to the SEC that it would “adopt certain policies and procedures relating to BIDS to mitigate concerns” over potential conflicts of interest.
The NYSE also notes that if volume in the New York Block Exchange exceeds 10 percent of total NYSE volume over four of the previous six months, the exchange will engage a third party self-regulatory organization (SRO) to audit BIDS’s trading in the facility and at the NYSE.
The two organizations, BIDS and the NYSE, moved closed together in August when BIDS hired a senior attorney at the NYSE, Vivian Maese, as its general counsel. “BIDS is developing very innovative trading technologies,” Maese said at the time. “The joint venture with the NYSE Euronext is a good example of our strategy in action.” Maese is one of three senior executives at BIDS.
