A meeting to develop a rule to limit off-exchange trading between exchanges and brokers overseen by buy-side trade body the Investment Company Institute (ICI) is set to take place on 3 December, theTRADEnews.com has learned.
The meeting is one in a series that has occurred throughout the year to discuss key market structure issues including the formulation of a proposal for dark pools to offer price improvement to facilitate execution, two sources involved in the talks confirmed to theTRADEnews.com.
A trade-at rule would require dark pools to provide meaningful price improvement to facilitate execution over a lit venue. Exchanges have long called for such a rule to stem the growth of the trading that occurs on alternative trading systems (ATSs) and internal broker dark pools, which they believe affects price discovery.
Any proposed rule would have to be subject to approval by the Securities and Exchange Commission (SEC) and open to industry comment through the regulator’s rule making procedures.
“Exchanges and brokers will have difficulty in overcoming their own self-interest but I expect there will be room for compromise,” Matt Samelson, principal and capital markets consultancy Woodbine Associates told theTRADEnews.com. “The key question is how concerned are industry participants that the SEC will propose a trade-at rule that they have little say in shaping.”
Samelson added that some sort of trade-at rule would address the expanding remit of dark pools that now provide execution increasingly similar to exchanges, as opposed to block-sized trades that marked their formation.
“While specific numbers and costs are impossible to come by, the later transactions do more to hurt price discovery than benefit principals when done in a non-displayed venue,” Samelson said.
One source present at earlier ICI meetings on this topic in May and July told theTRADEnews.com the meetings had not heralded concrete outcomes between participants.
“ICI typically works within committees, so this meeting seems broader than usual,” the source said, adding that a final trade-at rule proposal may still be some time away as exchanges looking to bring back market share and brokers and ATSs looking to extend dark trading disagreed on key points.
“The meetings in May and July weren’t terribly productive,” he said.
Although no details of a proposed solution have surfaced, ICI has vocalised support for pilot programmes addressing similar issues, namely tick-size reform and liquidity rebates. Pilot programmes provide data upon which wider-ranging rules can be created and fit into SEC chair Mary Jo White’s goal of data-driven rule creation.
Speaking at the annual ICI market structure conference in October, Ari Burstein, senior counsel for ICI, said buy-side firms he had talked to have indicated they would support pilot programmes around these market structure issues.
ICI declined to confirm or deny details of the December meeting.