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Where Has All the Stock Trading Gone?

Public exchanges lose out as stock trading moves to dark pools and wholesalers
Where Has All the Stock Trading Gone?
Photograph by Paolo Pellegrin/Magnum Photos

It’s been a rough few months for NYSE Euronext, owner of the country’s biggest stock exchange. In February, European regulators scrapped its planned $9.5 billion merger with Germany’s Deutsche Börse over concerns it would create a monopoly in exchange-traded derivatives. NYSE Euronext’s first-quarter profit tumbled 44 percent, driven by a decline in trading volume. And in April, Facebook announced it would hold the most anticipated initial public offering in years on Nasdaq, NYSE’s arch rival.

That’s not to say things are much better at Nasdaq OMX, the second-largest U.S. equities exchange owner. Since 2000 its share of U.S. stock trading has fallen by a third, to 22 percent. Both exchange companies are contending with similar forces: an overall slowdown in trading, the rise of smaller public exchanges such as BATS and Direct Edge, and the increasing number of trades being executed “off exchange”—either at wholesale brokerages or on private trading venues known as dark pools. Since January 2008 the share of trades executed off public exchanges has increased, to 32 percent from 26 percent, according to market research firm Tabb Group. Nasdaq and NYSE “are getting a smaller bite of a shrinking pie,” says Sang Lee, an analyst at Aite Group.