Trading in the Closet
- Joshua M Brown
- July 12th, 2012
We've come a long way in the history of American capital markets, a 200 year evolution followed by a 10 year devolution, progression turned to regression in no time at all.
After building the most vibrant, open, fair and admirable marketplace on the planet, we decided that this was no good - and so the exchanges went for-profit and a third of all trading activity migrated away from the lights into the dark recesses of a utility closet.
Congratulations are in order all around!
For the past decade, the New York Stock Exchange (NYX) has watched its share of trading volume slowly erode. While a lot of that volume simply vanished as individual investors pulled an estimated $300 billion out of U.S. equity mutual funds since 2009, plenty of it was grabbed by upstart competitors: Public exchanges Direct Edge and BATS, launched in 2005 and 2006, respectively, now account for a combined 17 percent of all equity trading volume in the U.S. Today the NYSE handles about 22 percent, down from around 80 percent in the late 1990s.
What’s really vexed the NYSE is all the trading that’s been lured off public exchanges, and either executed internally within wholesale brokerages or on private trading venues known as dark pools. Today about 30 percent of all equity trading in the U.S. goes off “in the dark,” where it is not subject to the same rules, regulations, and disclosure policies that govern public exchanges.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.