Add dark pools to the list of losers during Monday’s rout in the U.S. stock market.
Wall Street’s more-secretive corners -- off-exchange platforms such as dark pools and banks’ internal networks -- handled less than 30 percent of equity volume, their smallest share of trading since August 2012. More than 14 billion shares traded in total, the most since June 26 and more than double the daily average of 6.6 billion during the past year.
When markets are volatile investors are usually more concerned about getting a trade done than waiting to find the best price. That makes exchanges the more appealing option because offers to buy and sell stocks are out in the open, rather than hidden as they are in dark pools. This helps drive traders to public markets during times of distress.
For years, the less-regulated private platforms have lured business away from the more transparent exchanges. That trend reversed itself as markets convulsed Monday with NYSE Arca, Nasdaq Stock Market and Bats Global Markets Inc. winning abnormally high volumes. Off-exchange trading usually exceeds 35 percent and sometimes tops 40 percent.
During times of distress, traders may also want to do business on the largest liquidity pools. Exchanges still handle the bulk of trading even on their worst days, and they say their systems can handle bursts of trading.
“The exchanges employ very resilient, redundant systems designed to handle extremely high-levels of message traffic and support abundant liquidity in times of extreme market volatility like we are experiencing now,” said Walt Smith, head of U.S. equities at Nasdaq OMX Group Inc. “We’re seeing market participants choosing to source liquidity and execute their orders on public markets rather than off exchange platforms.”
Bloomberg LP, the parent of this news organization, runs an off-exchange trading system called Tradebook and owns a stake in Bids Trading LP, which operates a dark pool.