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NYSE Goes to the Dark Side. Well, Maybe Grey Side

New York Stock Exchange on Wall Street in New ...

New York Stock Exchange on Wall Street in New York, New York, United States. Español: Bolsa de Nueva York en Wall Street en Nueva York, Nueva York, en los Estados Unidos. (Photo credit: Wikipedia)

— Photo Courtesy https://exchanges.nyx.com

The financial markets have changed and New York Stock exchange has lost volume over the years. Currently it trades only 22% of the equity market  down from 80% in the late 1990.  Their public competitors such as Direct Edge  and   BATS, launched in 2005 and 2006 have taken 17% of the volume.

Though some of the balance of equity has disappeared a large percentage have moved off the public exchanges  to dark pools or dark liquidity.   Darkpools are not available to the public and have little regulation.  Technology has  advanced to accommodate  private trades and with dark pools these trades are often  anonymous.

One form of dark pool is for the equity to be handled internally to the organization  through a wholesale  brokerage.  Another form of  darkpools are trades by financial institutions so that the trades can be anonymous and does not impact the market.  There is no showing of hands that will trigger activity in the market  which could potentially  push pricing up or down.

THE NYSE plans to recover its lost volume using a hybrid    “greypool” to   gain benefits of the privacy of the darkpool  and  benefits of a highly regulated institution.

The Security and Exchange commission approved the NYSE’s pilot program called the Retail Liquidity Program slated for August 1st.  The RLP’s intent is to bring business back to the NYSE.

RLP will be able to quote stock prices in fractions of a cent which is not permitted on public exchanges.  The market makers using the RLP will not be required to make their prices public and they will be receiving orders directly from the individual investor with an E*Trade accounts   instead of  purchasing from a hedge fund  that may  have advantageous information or  a volume situation.

NYSE officials say that while the RLP does borrow a few elements from dark pools, it brings them into a more regulated, transparent platform. “The important part around this program is that it replicates some of what happens in non-exchange markets and brings it into an exchange environment where it’s subject to the rules and oversight that exchanges are known for,” says Joe Mecane, the NYSE’s head of U.S. equities.