Ridding the U.S. stock market of dark pools would be the wrong move, though it wouldn’t be disastrous, said Bob Jain, Credit Suisse Group AG (CSGN)’s global head of asset management.
The current controversy over the functioning of stock markets is overblown, said Jain, who ran the Zurich-based bank’s equities business for almost four years until late 2012. Until it stopped reporting data last year, Credit Suisse’s dark pool was ranked as the largest in the U.S.
“If dark pools went away it wouldn’t be the end of the world, but I don’t think that would be the right structure for the equity markets,” Jain said in an interview today with Bloomberg Television’s Erik Schatzker and Stephanie Ruhle at the Milken Institute 2014 Global Conference in Beverly Hills, California.
Jain’s comments came amid unprecedented scrutiny of U.S. stock markets in the wake of investigations by state and federal authorities and the publication of author Michael Lewis’s “Flash Boys.” Securities and Exchange Commission Chairman Mary Jo White discussed market structure in testimony today before a Congressional committee.
“I don’t think this is as big a story as everyone’s making it out to be,” Jain said on the “Market Makers” program. “The SEC’s doing a very good job here of saying,‘We’re going to take a data-driven approach to this.’”
Jain now runs a unit that oversees roughly $420 billion. He said he thinks small investors benefit from the structure of today’s $22 trillion U.S. stock market. Dark pools are venues where customers’ orders are executed privately instead of being sent to public exchanges.
Terrence Duffy, executive chairman of CME Group Inc., operator of the world’s largest futures exchange, told Bloomberg News last week that killing dark pools would fix the stock market because it would ensure all trading takes place on transparent exchanges. At a Milken panel yesterday, Jamil Nazarali, head of Citadel LLC’s execution services unit, said the U.S. is “one of the few markets in the world where the little guy gets a better deal than the big guy.”
In her testimony before the House Financial Services Committee, White faced questions from lawmakers about criticism of the SEC’s oversight of stock markets and automated trading strategies. The agency has faced a surge of pressure since Lewis’s book depicted a stock market in which high-frequency traders profit by preying on slower investors.
“We could not be doing a more intensive review of all of the issues,” White said, adding that she couldn’t disclose when the SEC would issue recommendations for new rules.
Jain said that while he doesn’t believe high-speed traders are a concern, a slower market would probably be better.
“If everyone said ’We’re slowing everything down,’ if technology came out of the system, it would actually be a benefit for everyone,” he said. “The high-frequency system is fine but I don’t think speed is that relevant.”
One of the issues with the debate about the market and its participants could be branding, Jain said. “The wording has been very bad -- dark pools, high-frequency trading,” he said. “It just makes everyone sound a bit nefarious.”
To contact the editors responsible for this story: Nick Baker at firstname.lastname@example.org Steven Crabill