[ by Howard Haykin ]                          

The chief executives of the three largest stock exchanges are joining forces for the first time to push regulators to rein in the increasing amount of trading that is moving off public exchanges and onto platforms like so-called dark pools.

The leaders of the NYSE, Nasdaq and BATS Global Markets - BATS is 3rd largest exchange operator - plan to meet on Tuesday with SEC officials, according to people briefed on the meeting.

At the meeting, the exchange officials hope to that regulators will commit to escalating oversight of private trading platforms - e.g., dark pools - that generally are owned by banks and which allow investors to trade out of the public eye, the people said. As the amount of trading taking place away from the public exchanges has grown rapidly, regulators have been examining whether dark pools create an uneven playing field for some investors.

Notwithstanding the tremendous rivalry between exchanges and dark pools, the exchanges have largely avoided public criticism of these alternative trading platforms, largely because the bank owners also are the largest exchange customers.  making publicly criticizing off-exchange trading because the banks that run the dark pools are also among the largest customers of the exchanges. Cooperation among the exchanges has also been difficult because of their fierce competition.

Reaching Point of Diminishing Returns.   Exchange executives say they're now more motivated be stand in opposition to the dark pools, for the simple reason that these locations have used "bracket creep" to capture increasing percentages of trade volume from the listing exchanges.  As much as 40% of trade volume in listed securities are being executed on these smaller trade locations. 

A second reason for exchanges to step up their push for protective measures is that the large-scale turnover at the SEC is seen as an opportunity for the exchanges to improve their standing at the SEC. 

Exchanges Tread Softly.   The exchanges, themselves, have been roundly criticized for their role in the increasing complexity and fragility of the nation’s stock markets. Both Nasdaq and BATS hosted significant technology glitches on their exchanges that are still cited when investors talk about their shaken confidence in the markets.

For further details, go to [Dealbook, 4/8/13].