MIAMI Jan 26 Stock market regulators should
take a hard look at the 'maker-taker' form of trading that now
dominates share transactions in the United States, Jeffrey
Sprecher, CEO of the IntercontinentalExchange and new
chief of the New York Stock Exchange, said on Sunday.
"Unfortunately it's spread throughout the equities markets
in the U.S. and we can't unilaterally change it alone. But it's
certainly something we want to raise the profile and start a
conversation around because I think it hurts everybody in the
market," Sprecher told Reuters in an interview on the sidelines
of the Commodity Markets Council industry meeting in Miami.
'Maker-taker' refers to an organized system of "rebates"
that large traders and brokers receive to channel their stock
transactions through the NYSE or other established exchanges.
As trading volumes have grown with electronic matching and
other automated trading, the largest traders have tended to use
such arrangements more, saying exchange fees on transactions
were too high and demanding such rebates for large volumes.
In addition, private deals usually between big
broker-dealers, including private traders known as "dark pools,"
have added huge volumes.
Sprecher said the Securities and Exchange Commission as well
as self-regulatory bodies like the Financial Industry Regulatory
Authority (FINRA) need to look harder at the issue. The Royal
Bank of Canada Capital Markets unit in November wrote to the SEC
that 'maker-taker' arrangements disadvantaged investors, created
conflicts of interest at brokers and banning the practice should
"I think maker-taker pricing or payment for order flow is
bad for markets," Sprecher said. "It creates false liquidity by
attracting people who are there solely to try to make rebates
and not actually trade and hold risk. That liquidity leaves
quickly and is not subject to any contractual obligation like a
market-maker would be."
He said such arrangements distort pricing as well.
"The price that we see as a bid/offer price in the market is
really not the price because there are rebates and other
discounts that are applied," Sprecher said. "So we don't have a
view of the actual price which I think is to a certain degree
false advertising when you have a public ticker.
"Lastly, it changes the relationships and incentives between
a customer and its broker depending on whether the broker
internalizes the rebate for the customer order. The relationship
between a broker and a customer should be one of a broker having
their interest aligned with their customers."
All of which, Sprecher said, points to the need for
regulators like SEC or FINRA to take a closer look.
"I don't know if it's something that bothers regulators,"
Sprecher said. "This current SEC has said they are definitely
taking a look at market structure. FINRA has said it is taking a
look at dark pools and the way customer orders are being
handled. Whether that prompts more government action I don't
know. But there's nothing wrong with being candid about the
problems in an industry in order to help change the debate."
EURONEXT IPO IN SPOTLIGHT
Sprecher stunned the financial industry last year when he
bought NYSE Euronext for $10.9 billion, capping a decade long
expansion that put the IntercontinentalExchange at the forefront
of world equity markets. ICE, founded in 2000 with a focus on
energy futures, had previously acquired commodities exchanges in
New York, London and other locations, building up core users for
its round-the-clock electronic trading of commodities and
financial futures, options and swaps.
Sprecher declined to comment on the plan to spin off the
European equities markets in Euronext as an IPO this year.
Beyond the NYSE, the London International Financial Futures
Exchange (LIFFE) was widely seen as the jewel in the transaction
that Sprecher was seeking to complement the ICE portfolio of
"We're doing well. We are in a quiet period on Euronext
which I guess in and of itself suggests we're making progress,"
Sprecher said, declining to comment on the timing or nature of
the transaction which has been expected by this summer. But he
said integration issues between ICE and LIFFE are on schedule.
Analysts have speculated that for the Euronext IPO Sprecher
may do the same thing he did for the ICE IPO and engineer
private placements of shares to key market users. Sources have
said up to 30 percent of Euronext equity could be distributed
this way. Sprecher declined to comment.
"It is important to us that the company as a public company
have a stable shareholder base," Sprecher said.