For the Love of Retail
December 14, 2012
All of a sudden, everyone wants to give the retail investor a break.
The new-found love for the everyday American and his or her capital started this summer, at the New York Stock Exchange.
The two-century-old exchange decided it was going to give retail investors a break by matching their orders against orders from institutions willing to get deals done ahead of normal trading in a given day's session.
This gave rise to an exception to stock market rules. The Securities and Exchange Commission approved, for the first time, sub-penny pricing on shares, in this case. Thus was born the NYSE's Retail Liquidity Program, on August 1.
Today (December 17), the BATS Exchange launches its Retail Price Improvement program, also okayed by the SEC and also featuring sub-penny pricing. Direct Edge and the Nasdaq Stock Market have filed their own plans.
"This approval sets the stage for a fundamental shift in the way equity exchanges operate," according to BATS chief executive Joe Ratterman. Now, exchanges can segment their operations by type of customer.
The real driver, though, has been plummeting exchange volume. Daily volume is down 20% this year and is running at about 2007 levels. So anyone with a lot of volume to bring to market has weight.
Enter: Fidelity Investments. Its capital markets unit last week disclosed plans to launch a dark pool known as the Block Liquidity Opportunity Cross.
The dark venue is being launched to help institutional investors access ... retail order flow. High-frequency traders need not apply.
Fidelity's retail brokerage business trades approximately 535 million shares on average per day. Fidelity also takes in order flow from other large fund firms and asset managers.
"We're looking at retail order flow from other firms like Fidelity within the dark pool," senior vice president John Donahue said. "And our goal is to have the top 100 buyside clients interacting with all this retail order flow by the end of 2013."
If you're trying to move large blocks of stock for your portfolios and you want to do it without disclosing who you are, you can do it in the exchange operators' crosses between "lit" and "dark" trading systems.
Or you now can go direct to ... Fidelity.