BlackRock Inc, the world's largest asset manager, 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."
The New York-based company outlined a set of proposals aimed at boosting public confidence in the equity markets in a letter on its website to the U.S. Securities and Exchange Commission dated Sept. 12. It said that while the market is "not broken or in need of large scale change," improving current rules would help promote fairness, order and efficiency.
Questions about the safety and fairness of the mostly electronic markets have risen in recent years following a raft of high-profile trading glitches by numerous market participants, causing hundreds of millions of dollars of losses. Those concerns hit the mainstream in late March with author Michael Lewis' book "Flash Boys: A Wall Street Revolt," which claimed 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.
Some people, such as Intercontinental Exchange Inc Chief Executive Jeffrey Sprecher, 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.
But BlackRock 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.
Further, it said 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.
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