Our Response to Duncan Niederauer’s July 4th Op-Ed about Dark Pools in the FT


Yesterday on the birth of our nation, NYSE’s CEO – Duncan Niederauer, penned an editorial in the Financial Times, titled It’s Time to Bring Dark Pools into the Daylight. He makes these points:

–          Transparency in our markets is shrinking and investors are walking.

–          Dark pools are much less regulated than exchanges.

–          50 Dark Pools in the US handle nearly 40% of daily trading volume.

–          Regulations designed to promote competition have had massive unintended consequences, like a two-tiered market structure; white-hat-wearing Exchanges are one tier – they provide full price transparency to investors, and dark-hat-wearing dark pools – they give peeks to certain traders.

Mr. Niederauer closes his editorial with a call to action for policy makers- regulators:

Policy makers should focus on establishing fairer and more transparent equity markets, as well as a more level playing field among the different types of participants, which should result in better equity prices for investors and greater participation in such markets by investors.

His commentary repeats what he said to Congress a few weeks ago, where before lawmakers he and Knight’s Tom Joyce went toe to toe, arguing for their respective business models. In their exchanges then, Joyce hammered at the Exchanges’ love affair with HFT, and Niederauer hammered back at Joyce’s internalization business.

We agree with more than a few of his gripes, namely that (1) thriving fair and transparent public markets are the basis for any capitalist system, and (2) it is true that exchanges have higher regulatory burdens than dark pools.

But we would be remiss if we did not call out Niederauer’s comments as self-serving on his (The Exchanges) part. Are the for-profit exchanges just victims of unintended consequences here, or have they had a hand in making the bed in which they currently lie? Consider these points/facts that are not mentioned in Duncan Niederauer’s Op-ed:

–          Exchanges helped craft all of the rules that Niederauer is complaining about, and they are complaining only after they have reaped the short-term benefits of those rules.

–          Exchanges invented the Flash Order that Niederauer complains that dark pools are using to harm investors.

–          Exchanges own stakes in Dark Pools.

–          Exchanges have created order types that are anything but fair and transparent, and serve only to get their largest HFT customers first in line at any price.

–          Exchanges encourage a game of HFT rebate arbitrage that is anything but fair and transparent, and has resulted in fair-weather public liquidity.

–          Exchanges willingly embraced an arms race, as they thought that revenue growth from the tools (colocation, data feeds, tech services) they sold the participants would go on forever.

–          Institutional Investors have embraced murky dark alleys because the theft in the streets had become so pronounced.


Yes, our public markets must be protected. We agree with Niederauer.

However, he needs to be held accountable for his role in breaking our markets. After all, it is due in large part to the poor leadership by all of the stock exchanges executives, that the structure of our markets today is so weak.