Markets thrive on information. Greater transparency and certainty on price makes markets more efficient, while increasing confidence among buyers and sellers. This fundamental principle is why the Long-Term Stock Exchange has been a fully-displayed market since day one. We made this decision because we are clear about who and what we stand for: more transparency means greater confidence in price, all of which benefits companies and long-term investors. This week, we took additional steps to further this commitment.
Commenters and policymakers have recently raised concerns about the level of equity trading happening in private networks commonly referred to as “dark pools.” All 16 national securities exchanges, including LTSE, are required to post information about certain quotes on their market. This information sets what is commonly referred to as the national best bid and offer (NBBO). There are 30+ other trading venues, however, that are under no obligation to share such information about their quotes. Aspointed out this week, "nearly half of the trading interest in the equity market either is in dark pools or is internalized by wholesalers" rather than occurring in "lit markets" like LTSE.
Private market activity provides unique benefits to certain market participants. The public markets allow for competition within the public quote, which democratizes the benefits to all investors no matter where they choose to trade. An interesting question: does the current balance between private and public market activity create the right benefits?
LTSE wants to increase the competition to display the best prices by offering an opportunity for “dark” quoting and trading to become part of the NBBO. This does not require a wholesale reordering of our financial markets nor does it compel firms to quote on an exchange. It simply provides an avenue for existing off-exchange activity to become part of the public quote. We are optimistic that there is increased demand for the innovations in our modern public markets. We have requested from the SEC the ability to operate a display-only facility, which will allow Alternative Trading Systems (“ATS”) and other over-the-counter (“OTC”) market participants to display their trading interest in the public markets. The display-only facility will permit members of the OTC market that wish to display liquidity to do so via a protected quotation..
We’re proud to be proposing a solution like this and we will continue to pursue outcomes that enhance the relationship between companies and investors.