Everybody in the pool(s)

By: Ray Pellecchia

File Under: NYSE

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On this day in 1945, NYSE kicked off the raising of $1 billion in war bonds.

No shortage of news today about dark pools, crossing networks, etc. Seems only a short time ago, some pundits were forecasting a market duopoly in the U.S.; now looks like there's no shortage of competition. -- RP

Thain's Global Scenario: Fewer Than Five Big Markets -- On the rise of dark pools and crossing networks and their implications for market structure, Thain said that the economics of stock trading have "eroded" in the U.S., and blind pools are a way for brokerages to eke more profitability out of a trade. "The ability to trade anonymously is driving it," he said, though he acknowledged, "We need better systems to aid institutional traders who want anonymous, quantity discovery not available on the floor of an exchange." Thain said that the primary function of a stock exchange is price discovery in a transparent environment, but there is also a need for an opaque, anonymous, quantity discovery system. This fact underlies the dark-pool phenomenon. Baruch's Schwartz, leading a question-and-answer session with Thain, added, "Price discovery on the exchanges does not require quantity discovery from the dark pools, and in fact, they can weaken it. But the quantity discovery function in the dark pools requires price discovery from the exchanges." He said this is an important point because while dark pools perform a useful service, the exchanges' role in price discovery is vital to the continued health of the trading process. (SecuritiesIndustryNews.com/subscription)

Exchanges' Crossing: Amid dark-pool competition, Nasdaq and NYSE revive an old concept -- Point-in-time crosses, the first electronic dark books, have faded in importance with the proliferation of continuous matching engines over the last several years. But now the Nasdaq Stock Market and New York Stock Exchange are reinvigorating the concept in light of Regulation National Market System (NMS). The crossing initiatives by the major exchanges, which will unfold over the next few months, are also defensive. They offer themselves as anonymous venues to execute large block trades and recapture liquidity that has shifted to dark-book competitors by providing their own anonymous destination to execute trades. (SecuritiesIndustryNews.com)

UBS's Leibowitz: On the ATS Front Lines --
Q: Are the Nasdaq and NYSE crosses seeking to recapture liquidity they have lost to ATSs?
A: I think everyone is searching to understand what trading and price discovery look like in an environment that is much more electronic, and they're experimenting with different models, whether it's an ATS such as an ECN, a call at a single price and point in time, or a negotiated cross a la Pipeline [Trading Systems], Liquidnet or Bids. The U.S. market is in transition right now. The NYSE was a continuous call market, because you had the floor. You also had block desks doing a lot of volume before. They've been somewhat disintermediated, and the world is trying to figure out where to go now. (SecuritiesIndustryNews.com/subscription)

The secret stock market - 'Dark pools' and other new-age exchanges rewrite the rules, under the radar -- These so-called alternative trading systems are propagating rapidly, are often labeled "dark pools" because of their nebulous and murky nature. Estimated to handle about 1 out 10 shares traded each day in the U.S., dark pools are meeting a need by institutions to grab or dump stocks quietly -- and anonymously. In the harsh light of a public marketplace like the floor of the NYSE, an institution trying to pull off a massive trade runs the risk of making a big splash that will move the market. But in a dark pool, a big fish can jump in without so much as a ripple. 'Both the innovators and exchanges are profoundly affected and, depending on their actions, will reap the benefits or squander the opportunities of dark pools.' (says) Jim Ross, NYSE (MarketWatch.com)

Bear Stearns Buys Full Control of Stock-Specialist Firm -- In another sign of the changes hitting the specialist stock-trading business, Bear Stearns Cos. took full ownership of the New York Stock Exchange floor-trading firm in which it held a majority stake and will book a $225 million noncash charge to reflect the reduced value of the business. Bear Stearns said yesterday it acquired the minority stake in Bear Wagner Specialists that was held by Hunter Partners LLC....The news comes as the specialists and floor brokers who handle orders to buy and sell shares on the floor of the Big Board are weathering sweeping changes. Trying to better compete with electronic rivals, the exchange has expanded the use of automated trading, reducing the need for the kind of human-to-human dealing that has been the bread and butter of specialists and brokers. The NYSE is a unit of NYSE Euronext. (WSJ.com/subscription)

Today in NYSE History
15 May 1945: The NYSE kicked off the Seventh War Loan, raising $1 billion that funded construction of 1,600 B-29 bombers.

Tags: New York Stock Exchange, Hybrid Market, NYSE, NYSE Euronext, NYX, trading, stock market