The world's largest asset manager BlackRock Inc. has asked regulators to force
exchanges to lower their access fees and require greater transparency of
broker dealer-run trading venues known as "dark pools." As Reuters reports, in a letter on its website to the U.S. Securities and Exchange
Commission dated Sept. 12 the New York-based company outlined a set of proposals aimed at boosting public confidence in the equity markets.
The letter read that while the market is "not broken
or in need of large scale change," improving current rules would help
promote fairness, order and efficiency.
In recent years there have risen questions about the safety and fairness of the mostly electronic markets, following a raft of big trading failures by numerous market participants, causing hundreds of millions
of dollars of losses. Those worries hit the mainstream in late March, claiming the markets were rigged in favor of high-speed traders.
BlackRock, which has $4.6 trillion in assets under management, said conflicts of interest in the markets could be reduced simply by lowering exchange fees charged to brokers that buy shares. Exchanges fees are currently capped at 30 cents per 100 shares taken from the exchange. Many exchanges also give rebates of a similar amount to brokers that sell shares on the exchange.
Reducing the fees to five or 10 cents per 100 shares, which would also lead to lower rebates, would prevent brokers from routing to particular venues based on how much they might get charged or make off of rebates, reinforcing best execution principles, BlackRock said.
It added that more orders might end up going to public exchanges instead of private dark pools, which have lower fees and have benefited from cost-cutting brokers.
Intercontinental Exchange Inc. Chief Executive Jeffrey Sprecher and a number of other specialists have called for an end to the rebate system, but BlackRock said such incentives can have a positive impact by compensating brokers for adding liquidity to the markets.
The asset manager also stopped short of calling for a rule that would force more trading on exchanges at the expense of dark pools and other venues that do not have to show pre-trade order information. Nearly 40 percent of stock trading volume happens away from exchanges, raising concerns about price discovery.
BlackRock, however, said these venues help keep costs low and allow institutional investors to covertly sell big blocks of stock without the market moving against them. It did, however, call for heightened disclosure by broker-dealers on how they route orders and on the quality of the order executions.
Moreover, it continued that dark pool operators should be required to make the details of how their platforms work public. Other
initiatives called for in the letter included a comprehensive review of
how exchanges execute orders, and more investment in public data feeds
to help them keep up with private feeds.
