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Liquidnet CEO: Not All Dark Pools are Bad

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  • Description

    Liquidnet CEO Seth Merrin says his dark pools provide better pricing for investors.

  • Duration 7:13
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This transcript is automatically generated

Markets are malfunctioning investors have been fleeing Wall Street moving into gold and bonds for safety who knows what's happening and why we'll Charlie's next guest -- a so called.

Dark pool with Charlie we know sounds kind of threatening in in CDX those dark pools.

Yet if it sounds that -- -- and isn't really that -- I don't think so.

We have a guy here is -- -- threatening an insidious -- Marron CEO liquid net set thanks for coming to arm.

You know you guys are important -- the market structure no doubt explain exactly what a dark pools that most people think we have to exchanges NASDAQ.

New York Stock Exchange there's.

Really a lot of other exchanges that are out there are there's a lot of chain that's going off off -- now and like like most things -- not all dark pools are created equal.

Or dissent and and to the definition that really the FTC has placed on -- is that if a dark for creates value or adds value above and beyond what's found on the exchanges.

Then that's good innovation and that's good market selection should continue and it's competition for the exchanges in terms -- units and you know if it.

That but we do and and our average execution sizes 250 times that found on the actions and we provide better pricing.

In 90%.

Or more of the executions that would provide.

And what we do -- we provide -- wholesale market for the institutions to be able to check those institutions manage money on behalf ninety million people.

The investment capital average investors average investors that.

That want to give them money tip professional managers to manage -- -- -- associate dead rat is because there are other guys -- -- three guys on the computer making markets and that's allowable under the system first of all dark pools a terrible time like that idea I'm.

-- -- -- -- But you know I think what the SEC says is that.

You know most of the dark pools actually -- than honest they're not providing value above and beyond what's found on the extent itself you have a couple of them not so about.

If you have forty -- fifty private exchanges.

That's now actually doing perhaps the majority of the -- in the market that's not a good and that's what we have right now that's what we have to.

Okay now then it becomes comes down to this and you know -- -- we just came out of the FaceBook IPO.

Which -- -- disaster in the way it was handled -- NASDAQ we'll get into that minute but last year this time or last year we had that we had a flash crash we've done.

Do you given the fact that we have this sort of this sort of this into mediation of treating all over the place.

And that's one of the reasons why you have flash precious is not not good price discovery.

Do we stand a chance of having another flash flash crash.

You know in every other industry and I call.

You know fragmentation and competition.

Right and in this market should call it competition too so it's not necessarily the reasons of the causes of something like the flash crash.

Unfortunately -- because the markets have become.

Very inefficient.

And specifically the the institutionally managed assets have grown forty times over the last thirty years every time they go -- the market they move the market.

So there's a whole new class of traders out there called high frequency -- right.

I'm not a -- -- -- traders -- bad either but there's a class that goes and exploits the supply demand imbalance.

And the problem is that the majority of the trading now.

Now in the in the exchanges in the markets.

Our high frequency trading and -- for stitches -- the price of the stock from the underlying -- about what actually outlook for high frequency trading.

I don't think that you have a lot I think that you have to take away the signals that started.

Anytime you have a majority of the volume that has to divorce between Tyson and underlying strong value of the stock.

You can get irrational pricing so that's -- gets a nice way of saying you think it could be another flash crash.

I don't think that all of the problems in the market structure have been correct it.

I think that the SEC is trying very hard I think that they've been you know distracted by things like Dodd-Frank.

But there are a lot of underlying structural problems -- thought to be resolved so that.

Maybe that the flash crash is not going to happen exactly as it had before but -- other causes that you create something.

-- collapse of urine of small investor you can see this happen again.

I'm it is possible I can happen again I'm so okay.

It's it's -- FaceBook IPO -- I think this is kind of interest in.

Was kind of a flash crash in a way wasn't it.

The way it was handled I mean it was it was -- it was a it was a point of time where nobody knew really what the price was.

Of of a stock now and it seem like a lot of this is just yet another reason for the and it was -- obviously mishandled by the NASDAQ paid.

This is a major market player.

What do you -- as -- -- -- -- NASDAQ.

Drop the -- in such a way that it really.

You know hurt investor confidence for gas crime and the FaceBook IPO there's so much -- to go around.

I wouldn't compared to the flash crash.

You know this -- and could have been and such a shining moment for the public markets the most visible IPO in that decade.

And it comes out and you know the first thing is that NASDAQ was having major technical problems and any time of them like there has technical problems of that magnitude people trained.

To protect the investors they didn't -- train I don't know why does make any sense to me why.

Morgan Stanley and underwriters during the road show.

Reduces the the estimates for FaceBook and increases the overall size of the IPO by 25%.

Those two don't work together right so of course -- the institutions were pulling back on their demands as they were the ones who found out about the reduction in their earnings estimates.

I'm so and they raised that over -- -- got over allocated of course it was going to be massive selling in the aftermarket.

There's enough blame to go around FaceBook -- -- -- could have been a real defining moment.

Absolutely destroys more confidence in the equity markets what do you think they should have -- right off the -- to stop trading -- section of halted trading period.

And I think that the should have them.

Universal disclosure honor and an issue so largest FaceBook from the so many people around the world so interest -- -- that one -- PL.

You have to have full disclosure if you're gong to reduce rates to anything in terms of your future forecast.

You gotta reform everyone -- -- you unwind this thing it's hard to put the genie back in the bottle is there any way to do it.

I don't think that you know this is one screw -- and I think backing over time FaceBook is either going to be a great stock.

What's not gonna perform this will be forgotten what we have to do is we have to do things that restore.

The confidence in the equity market you know going forward what are you going to put your money again.

You know that interest rates are not gonna you're gonna lose money in bonds that's for sure that's what what -- -- lose my twenty seconds we have left what would you tell the SEC.

We've obviously been distracted by Dodd-Frank.

Would you -- to get to get to work on market structure right now.

You know I I don't have the power to do that not I really don't know what -- that they're doing quite frankly you know congress has given them a big task.

I'm something that they did not offer that they have to fill in the blanks you know I really don't know exactly what but they're looking I do think that there are enough conflicts of interest.

In this business.

And enough market structure issues for to keep them busy for very long -- well we're gonna have to leave it that -- -- liquid net thank you but not such a big I for dark pool --

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