Terrence Duffy, who as executive chairman of CME Group oversees the world's largest futures exchange, has a solution for those seeking to fix the U.S. stock market: Kill dark pools.
While all futures trades happen on exchanges such as CME Group's, only about 60% of American equity volume does. The rest takes place on venues including dark pools, where orders are hidden until transactions are completed. That hurts investors because it obscures the true price of stocks, Mr. Duffy said Tuesday during an interview at Bloomberg News.
“Fix the fragmentation issue, and you'll fix the problem,” Mr. Duffy said. “We need to have 100% of that liquidity on exchanges.”
Mr. Duffy's position aligns him with his biggest rival: Jeffrey Sprecher, the CEO of IntercontinentalExchange Group. Mr. Sprecher's company, which like CME Group has its roots in futures, recently bought the New York Stock Exchange, giving it about 20% of the nation's equities volume. NYSE and its rivals have lobbied the Securities and Exchange Commission to enact rules limiting the amount of trading in dark pools.
In Mr. Duffy's idealized stock market, even though trades could still be distributed across multiple exchanges, dark pools and other off-exchange platforms would be eliminated. There are currently 13 stock exchanges, with ICE, Nasdaq OMX Group and BATS Global Markets the biggest operators. Beyond that, there are about 45 alternative trading systems, including dark pools.
