{"id":152007,"date":"2025-03-23T16:58:49","date_gmt":"2025-03-23T16:58:49","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/finance\/off-exchange-trading-increases-across-all-types-of-stocks\/"},"modified":"2025-03-23T16:58:49","modified_gmt":"2025-03-23T16:58:49","slug":"off-exchange-trading-increases-across-all-types-of-stocks","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=152007","title":{"rendered":"Off-Exchange Trading Increases Across All Types of Stocks"},"content":{"rendered":"


\n<\/p>\n

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We recently talked<\/a> about how off-exchange trading hit new record levels in 2024, topping 50%.<\/p>\n

In fact, in November 2024, the U.S. equities market saw the first month ever where more volume executed off-exchange than on. Off-exchange volume share also stayed above 50% in December 2024 and January 2025.<\/p>\n

Some think the increase in off-exchange volume is because of the rise in \u201csub-dollar<\/a>\u201d stock trading, which tend to be microcap<\/a> stocks traded mostly by retail investors, suggesting that this is not a problem mutual funds need to worry about.<\/p>\n

However, today’s data shows that\u2019s not true.\u00a0<\/p>\n

Off-exchange trading is high across the board<\/strong><\/h2>\n

In fact, the rise of off-exchange trading is widespread, affecting lots of stocks that mutual funds<\/a> are also trying to buy in large quantities. Off-exchange trading is over 45% for all market caps, including for stocks of all prices and exchange-traded funds.\u00a0<\/p>\n

No matter how you slice it, off-exchange share is up significantly since 2019.<\/p>\n

Chart 1: Off-exchange share has risen across all groups of stock since 2019<\/strong><\/p>\n

\n
\n
\n\"Off-exchange<\/p>\n

<\/source><\/source><\/source><\/picture>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n

The rise is largely driven by bilateral trading \u2013 not dark pools<\/strong><\/h2>\n

Interestingly, if we look separately at dark pools (ATSs) and other off-exchange (mostly bilateral) trading, we see that the dark pools market share has remained rangebound since at least 2019.<\/p>\n

That means the growth is coming from firms filling spread crossing orders (often with price improvement) and negotiated trades.\u00a0<\/p>\n

To be fair, much of this trading is retail<\/a>, which has grown significantly since Covid<\/a> and free commissions. But retail doesn\u2019t account<\/a> for all of the non-ATS<\/a> trades printed off-exchange.\u00a0<\/p>\n

Chart 2: Bilateral (non-ATS) has seen almost all the off-exchange share increase since (at least) mid-2019<\/strong><\/p>\n

\n
\n
\n\"Bilateral<\/p>\n

<\/source><\/source><\/source><\/picture>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n

Asset managers have less flow to interact with<\/strong><\/h2>\n

Importantly, for mutual fund managers, these bilateral trades represent liquidity that they typically can\u2019t interact with.\u00a0<\/p>\n

You might think it\u2019s just a few \u201cretail darlings\u201d pulling the averages up. But in fact, looking at all stocks in the Russell 3000 Index, we see that very few now have off-exchange share below 30% (or, said another way, on exchange above 70%).\u00a0<\/p>\n

The majority of stocks see off-exchange trading between 40%-50%, and that\u2019s true regardless of the stock price (horizontal axis) or market cap (circle size).<\/p>\n

Chart 3: Accessible flow for asset managers\u00a0<\/strong><\/p>\n

\n
\n
\n\"Accessible<\/p>\n

<\/source><\/source><\/source><\/picture>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n

At the very least, that might mean buy-side orders using a \u201cVWAP<\/a>\u201d or participation algorithm will actually be trading more aggressively<\/a> in the market than they seem, which can increase the costs of trading.\u00a0<\/p>\n

It may also add to search and signaling costs, as routers navigate the fragmented hidden liquidity, and opportunity costs as fills are missed.<\/p>\n

It might be time to reduce regulations that create unnecessary fragmentation\u00a0<\/strong><\/h2>\n

Lit prices, fair access and competitive NBBO are features that make stock markets different to other markets. U.S. households depend on a vibrant public equity market for their financial security.\u00a0<\/p>\n

It\u2019s possible regulators have taken for granted the prices that lit markets provide. Thanks to economics<\/a> that favor<\/a> dark over<\/a> lit markets, lit market share has been falling globally.\u00a0\u00a0<\/p>\n

For institutional traders trying to navigate fragmented markets with large trades<\/a>, fragmentation makes finding liquidity harder. Segmented markets mean there is less liquidity than a trader might think. Both can increase trade costs<\/a> and reduce active mutual fund returns.<\/p>\n

Research also suggests that companies with wider spreads will also have higher costs of capital<\/a>, which will reduce their investment back into the U.S. and global economy.\u00a0<\/p>\n

Academic studies indicate that there is a tipping point<\/a> above which market quality and spreads get worse, potentially between 10% to 46.7% dark<\/a>. The U.S. market has now breached all those levels.\u00a0<\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":"

We recently talked about how off-exchange trading hit new record levels in 2024, topping 50%. In fact, in November 2024, the U.S. equities market saw the first month ever where more volume executed off-exchange than on. Off-exchange volume share also stayed above 50% in December 2024 and January 2025. Some think the increase in off-exchange […]<\/p>\n","protected":false},"author":1,"featured_media":119812,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[93],"tags":[22876,63321,11046,11086,14149],"dealstore":[],"offerexpiration":[],"class_list":["post-152007","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-increases","tag-offexchange","tag-stocks","tag-trading","tag-types"],"yoast_head":"\nOff-Exchange Trading Increases Across All Types of Stocks - Som2ny Network<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fivemor.com\/?p=152007\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Off-Exchange Trading Increases Across All Types of Stocks - Som2ny Network\" \/>\n<meta property=\"og:description\" content=\"We recently talked about how off-exchange trading hit new record levels in 2024, topping 50%. 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