Weekend Economists American Bad Boys Part 1 July 12-13, 2014

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3. Who Owns the U.S. Stock Market? By Pam Martens and Russ Martens

http://wallstreetonparade.com/2014/07/who-owns-the-u-s-stock-market/

Serious observers of Wall Street are increasingly asking this question: could a group of trading venues with giant pools of capital, operating in the dark, using high-speed algorithms and artificial intelligence that has a massive historical database and gets smarter with each micro-second trade — effectively own the stock market? Today, we take a look at the massive trading control exercised by just five Wall Street firms.

JPMorgan Chase, Bank of America and Citigroup jointly control trillions of dollars in commercial bank deposits with thousands of branch bank buildings stretching across the United States scooping up the life savings of everyday Joes who have no clue these are also the Masters of the Universe on Wall Street. Goldman Sachs and Morgan Stanley also own FDIC insured banks. Goldman Sachs Bank USA, as of March 31, 2014, has $104.7 billion in assets; Morgan Stanley Bank, N.A., as of the same date, has $108.8 billion in assets. These institutions have access to the Fed’s discount window, super cheap access to capital from FDIC insured deposits and a massive subsidy of their institutions under the too-big-to-fail doctrine. And, they also own outright or jointly a large swath of anything and everything that passes as a trading venue on Wall Street today. The dark pool known as BIDS Trading, L.P. says it “was designed to bring counterparties together to anonymously trade large blocks of shares.” According to its web site, it is owned by: JPMorgan Chase, Bank of America Merrill Lynch, Citigroup, Goldman Sachs and Morgan Stanley – along with other financial firms.

Before BATS Global Exchange pulled its planned Initial Public Offering (IPO), its SEC filing said its owners included Citigroup, a subsidiary of Bank of America Merrill Lynch, and others. BATS has since merged with Direct Edge, whose owners included Goldman Sachs. The combination of BATS with Direct Edge puts four of the 13 public stock exchanges under the control of this one entity. According to a March 31, 2013 report from Morningstar, the following Wall Street firms were among the major shareholders of the New York Stock Exchange/Euronext: Citigroup, 6.5 million shares; Morgan Stanley, 5.9 million shares; JPMorgan Asset Management (UK) Ltd., 4.9 million shares; Merrill Lynch & Co. Inc., 4.2 million shares; Goldman Sachs & Co., 3.1 million shares. In November of last year, the IntercontinentalExchange Group, Inc. purchased NYSE/Euronext. It is unclear if the Wall Street firms are still stakeholders. According to an SEC document dated April 27, 2012, the Box Options Exchange is jointly owned by multiple firms which include Citigroup and LabMorgan Corp., a technology think tank at JPMorgan Chase.

The gambit to create dark trading pools dates back to at least 1999. As we previously reported, in September 1999 Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs partnered with Bernard Madoff to compete head on with the New York Stock Exchange in a venture called Primex Trading. (As we now know, Madoff was running a Ponzi scheme at that time, calling into question how much due diligence was done by lawyers for this joint venture.) The Nasdaq stock market licensed the Primex Auction System and ran it for two years before abruptly shutting it down on January 16, 2004...With the intense competition among these Wall Street powerhouses, one has to seriously question why they are always teaming up in joint ventures. As we reported in January 2008 in an article titled “How Wall Street Blew Itself Up,” these same five firms, along with others, were involved in the joint creation of a company, Markit, to price exotic, off-exchange traded derivatives. That company went public last month.

MORE DARK POOLS AND BAD BOYS AT LINK