- — 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.