Jim Ross: Dark Pools Shouldn't Be Able to 'Hide in Plain Sight'

By: Ray Pellecchia

File Under: MatchPoint

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The alternative-trading-system model is "free form and flawed. I think it needs to be reformed," says Jim Ross, the head of Matchpoint, NYSE Euronext's point-in-time crossing platform in a thought-provoking interview in the current Traders Magazine.

"Jim Ross at NYSE Euronext thinks dark pools have come full circle. Crossing systems were an alternative to the exchanges, but now, in his view, a crossing platform within an exchange is the best 'alternative to the alternatives,'" the article begins.

In between answering questions about the benefits of MatchPoint over other dark pools and point-in-time crosses, as well as other subjects, Jim puts forward an idea about the intersection of dark pools and transparency:

Opaque or pseudo-opaque ATSs are commercially self-interested rather than focused on solving problems involving implicit transaction costs. That's not what this revolution has been about. It's been about reducing transaction costs because transaction costs reduce performance. It's ironic that the NYSE is more open and inclusive than the ATS industry, which is more clubbish and isolated -- like the NYSE of old.

We need a more centralized environment now. That's why MatchPoint in an exchange facility is critical in reaping the disjointed liquidity that's out there. It's an alternative to the alternatives.

Not one to mince words, eh? As readers of Jim's posts on this blog well know: a shrinking violet, he's not. Later, in a related vein:

TM: Do you think dark pools should be required to publish their market share stats monthly?

JR: Yes. ATS operators should embrace this. At a minimum, this is the right thing to do. It's no special privilege to hide in plain sight. The dark pools are doing 8 percent to 9 percent of the consolidated volume. That's not nothing. Investors should be able to see where their flow is going and how it's being transacted. It's also less effective to do transaction cost analysis without that information.

I'd recommend reading the article to get the full context, and a good sense of Jim's passion for and Street-wise knowledge of the subject. And I'd be curious to hear what you think: is it time to shed more more light on the "dark side" of the market?