Nasdaq plans to plunge into controversial “dark pools” before the end of the year.
The New York-based exchange operator expects to take over and run three bank-owned private trading platforms, known as “dark pools,” after getting the go-ahead from regulators earlier this year.
The lightly-regulated trading platforms, which allow investors to buy and sell anonymously, have come under fire — particularly after Michael Lewis’ bestselling “Flash Boys” cast an unflattering light — and are seen by some as fishing holes for predatory traders.
Last year, New York Attorney General Eric Schneiderman sued Barclays over its dark pool, alleging that it lied to investors about the number of high-speed traders lurking in its trading platform, known as LX.
The move by Nasdaq, the second-largest US stock exchange by market share, comes as costs are rising to keep up with not only changing technology but also tighter regulations.
“It’s apparent to us that a centralized organization running a series of dark pools, while giving independent firms the ability to customize it, can realize tremendous cost savings for them,” Robert Greifeld, Nasdaq OMX Group’s CEO, told The Post.
Under the plan, banks would farm out their “regulatory burden” to Nasdaq, which, in turn, would profit from volume by operating multiple dark pools, Greifeld said.
“At three it gets to be interesting,” he said. “Two can be a break-even proposition.”
While Greifeld didn’t name the banks, he said twice that the dark pools had “low market share.” There are around 40 dark pools in the US.
The project, which has been in the works since the start of the year, has received approval from the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
Nasdaq is just waiting for the banks’ lawyer to hash out the details, Greifeld said.
The exchange operator reported a better-than-expected 32 percent jump in profit on Thursday, thanks largely to cost cutting.
In addition to its dark pool plans, Nasdaq is launching a futures exchange, called NFX, on Friday — a shot across the bow at the CME Group.
“They’re charging $1.38 to $1.42 [per futures contract]” Greifeld said.
“That’s kind of monopolistic rent,” he added. “We’re going to come in and half their rent.”