Stock Trading Fleeing U.S. Exchanges

While the markets are recovering slowly from the financial crisis of late-2000s, trading volumes on NYSE and Nasdaq OMX, the biggest U.S. stock exchanges, decline. A variety of possible reasons can be named, including overall slowdown in trading and the rise of popularity of smaller exchanges such as BATS. But there is one more reason - the increasing number of trades being executed at the wholesale brokerages or in so called dark pools - private trading venues.

There is a large article in Businessweek on the topic, called Where Has All the Stock Trading Gone?

According to the data collected by the market research firm Tabb Group, the share of trades executed "off exchange" has increased from 26 to 32 percent in four years, while the volumes traded on Nasdaq and NYSE have fallen by more than a third since 2000. Dark pools attract traders who execute large deals and don't want the market to know about them, and high-frequency traders. And wholesale brokerages now can compete with exchanges offering slightly better prices for sellers and buyers due to the rule for exchanges to increment quote prices at least for one cent.

Dark trading can help investors to earn more on the same operations (though essentially it is available only to the institutional investors) but the main problem of the last crisis was the lack of transparency, and off exchange trading is barely regulated at all. And today, while NYSE struggles to get the permission to provide prices in fractions in order to be able to compete with wholesalers, Knight Capital and the Securities Industry and Financial Markets Association, a lobbying group that represents big Wall Street banks, does its best to ruin this proposal. It looks like bulge bracket banks still prefer not to become subjects of regulation, and to earn money on the unfair markets. Some things never change, unfortunately.