Bloomberg News

Credit Suisse to Stop Relaying Dark-Pool Data, Tabb Says

April 19, 2013

Credit Suisse to Stop Relaying U.S. Dark-Pool Data, Tabb Says

A sign hangs above the entrance to the headquarters of Credit Suisse Group AG in Zurich, Switzerland. Photographer: Gianluca Colla/Bloomberg

Credit Suisse Group AG (CSGN), operator of the largest U.S. dark pool, said it will no longer publicly disseminate monthly volume data for the private stock-trading venue, according to an executive at Tabb Group LLC.

Credit Suisse will end its practice of voluntarily relaying information about its Crossfinder pool to research firm Tabb and Rosenblatt Securities Inc., which publish monthly statistics. The Zurich-based bank will stop disclosing volume, Adam Sussman, director of research at Tabb, said in a posting on the New York firm’s website. Rosenblatt also won’t get the data, Justin Schack, a managing director at the New York-based broker, said.

The move comes 10 days after chief executive officers of the biggest U.S. exchange operators urged regulators to follow policy makers in Canada and Australia and curb trading that occurs away from public venues. U.S. off-exchange volume reached 36.2 percent of all trading in the first quarter, compared with 32.8 percent last year, according data compiled by Bloomberg.

“Every month since March 2007, a wide swath of dark pool operators have voluntarily disclosed various execution statistics,” Sussman wrote. “Now these reports are in the danger of becoming inaccurate, as Credit Suisse has decided to stop reporting.”

Trading away from exchanges included 14.3 percent in dark pools in February, with Crossfinder accounting for 1.9 percent of overall equities volume, data compiled by Rosenblatt show.

Off Exchange

Brokers in the past have decided against supplying data because they didn’t have enough volume or worried about disclosing too much information, Sussman said in the posting. They may also have disagreed with the methodology other dark pools used to count volume since there’s no standard. Another reason is that the company may be “inherently secretive,” Sussman said. Now there may be a new reason.

“As the controversy over dark trading has erupted over the past year, fueled by the rise in off-exchange trading in the U.S. and the changes occurring in Canada and Australia, the industry has focused more on the gross amount of shares traded off-exchange, rather than the performance of any specific dark pool,” Sussman wrote. A broker must decide “whether all of this visibility is good for the rest of the company,” he wrote. “What is it actually accomplishing? When you realize ‘going out loud’ is only getting you burned, you go dark.”

Katherine Herring, a spokeswoman for Credit Suisse, declined to comment.

Alternative Trading

Schack said earlier this month that exchanges have stepped up their criticism of trading away from their venues as overall volume has declined, giving them a “smaller share of a shrinking pie.” U.S. equities volume has fallen three years in a row, to 6.42 billion shares a day last year from 9.77 billion daily in 2009, data compiled by Bloomberg show.

Dark pools are broker-run alternative trading systems that don’t publish bid and offer prices. They report trades immediately, as do exchanges, and must execute orders at the best price available nationally or better. They’re used by brokers, asset managers and algorithms in an effort to trade without pushing prices higher or lower.

The venues aren’t required by the Securities and Exchange Commission to report volume publicly. While Tabb tracks data from 16 brokers and Rosenblatt covers 19 venues, JPMorgan Chase & Co., Bank of America Corp., Fidelity Investments and Citadel LLC don’t report activity to either firm.

Dark Volume

“We’re disappointed with Credit Suisse’s decision, but respect that the firm must ultimately do what it believes is best for its business,” Schack said in an e-mailed statement. “We’re confident that we will continue to deliver the highest- quality intelligence on dark-pool volumes and trends to our institutional customers.”

The SEC proposed a rule requiring more transparency around dark-pool trading in 2009. It never acted on that initiative.

Some dark pools may reconsider whether they want to continue disseminating trade data after Credit Suisse’s decision, Sussman said.

CEOs of the three largest U.S. stock market operators told the SEC on April 9 that it’s time to drive more trading back toward exchanges and away from brokers. NYSE Euronext (NYX:US)’s Duncan Niederauer, along with Bob Greifeld of Nasdaq OMX Group Inc. (NDAQ:US) and Joe Ratterman of Bats Global Markets Inc., said too much off- exchange activity hurts the so-called price discovery process, making prices less reflective of buy and sell interest, according to a presentation published on the SEC website in connecting with the meeting.

Public Venues

The exchange CEOs told the SEC that trades should occur on public venues unless brokers provide better prices or execute large orders. An exception would be allowed for brokers quoting at the best price on public markets, they said. Brokers currently can match the best price available on exchanges or trade between a stock’s national best bid and offer.

The total share of U.S. equities trading through hidden or non-displayed orders was 18.9 percent in February, with 14.3 percent from dark pools and 4.6 percent from exchanges, according to Rosenblatt. About 11.5 percent of trading on the main exchange owned by Bats took place through hidden orders. Nasdaq’s orders that aren’t displayed publicly accounted for 9 percent of its volume and NYSE Arca’s were 6.6 percent of its February trading, the data showed.

Nasdaq’s dark orders amounted to 1.44 percent of overall volume in the industry, surpassing trading on alternative venues except Crossfinder, according to the Rosenblatt data. Hidden bids and offers on exchanges can trade with incoming orders that aren’t meant to be dark and must cede priority to publicly displayed buy and sell requests at the same price, according to Schack.

Rosenblatt began publishing a report with statistics and analysis called “Let There Be Light” in March 2008, according to Schack. Tabb began supplying data from brokers in March 2007, Sussman said.

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.


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