Nasdaq Looks to Congress to Win Market Reforms
(Reuters) -- Exchange operator Nasdaq OMX is trying to gain support for a legislative proposal that would give it a competitive edge over both rival exchanges and banks that operate anonymous trading venues known as "dark pools."
According to U.S. House aides familiar with the matter, Nasdaq this week has been making the rounds with congressional staff to try to win backing for an amendment it had hoped could be included in a broader small business capital-formation bill.
It scored a partial victory on Thursday.
Republican Representative Jim Renacci of Ohio started discussion on the amendment during a House Financial Services Committee meeting on the capital formation bill.
But lawmakers worried the amendment could bog down that bill, and decided it needed further study. They delayed consideration of the issues raised by the amendment for a few weeks, when the panel plans to hold hearings on market structure matters.
The proposed amendment aims to reduce the fragmentation in equities markets and encourage better price discovery. Currently, trading volume is spread out between U.S. exchanges and anonymous trading pools that allow investors to trade large blocks of stock without tipping their hand to the broader marketplace.
One part of the proposed amendment that was offered by Renacci on Thursday would have let smaller "emerging growth companies" choose to only have their shares traded on the exchange where they decide to list.
That would give Nasdaq, an exchange known for being the venue of choice for small start-up listings, an advantage over all its rivals including New York Stock Exchange parent NYSE Euronext , which in general lists larger more established companies.
Another proposed amendment would directly target dark pools like those operated by Goldman Sachs and Credit Suisse by allowing newly listed smaller companies to voluntarily limit how much trading of their shares is done off-exchange.
The amendment would effectively set a partial "trade-at" rule by allowing newly-listed companies to require that any stock trades not conducted on an exchange be executed at a price that is "superior" to the best price displayed by any U.S. exchange.
Such a move would help Nasdaq and other exchanges such as the NYSE potentially bolster their share of U.S. equity trading, which in recent years has been reduced by the proliferation of alternative trading platforms like dark pools.
Dark pools, some of which are independent of banks, are popular with large investment funds that worry that prices will quickly move against them on the high-speed electronic exchanges.
"Changes to the structure of U.S. equities markets over the past few decades have created a confusing marketplace in which investors' orders are bounced among 13 exchanges and scores of other trading venues," Renacci said.
"This market works well for the largest companies... where there's plenty of buyers and sellers, but it is not good for emerging growth companies or their potential investors."
A spokesman for Nasdaq said the exchange operator looks forward to participating in an upcoming hearing on the issue.
Reform of dark pools is a topic that has been simmering at the U.S. Securities and Exchange Commission for the past few years as the agency conducts a broad review of market structure issues.
Among the areas being explored are the possibility of a trade-at rule as well as reforms to make dark pools more transparent.
(Reporting By Sarah N. Lynch; Editing by Tim Dobbyn)
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