Off-Exchange Volume Spikes to Record Levels
January 29, 2013
Off-exchange trading appears to be spiking at the start of the year.
On Monday, 2.4 billion shares were traded on dark pools, broker pools and other “non-exchange” venues, according to BATS Global Markets data that relies on the Trade Reporting Facility of the Financial Industry Regulatory Authority. That amounted to 38.9% of the 6.3 billion shares traded on all equities venues, including public exchanges.
That meant record or near-record trading occurred on each of the three major tapes, according to research compiled by NYSE Euronext.
On Tape A, which covers trading in stocks listed on the New York Stock Exchange, 1.3 billion out of 3.4 billion shares, or 37.4% of all trading, took place off-exchange, according to the BATS data.
On Tape B, which covers exchange-traded funds on NYSE Arca as well as trading on NYSE Amex and regional exchanges, the off-exchange share was 38.5%. And, on Tape C, which covers trades on Nasdaq-listed stocks, the off-exchange share was 41.5%.
That consolidated tape data indicates a significant surge in off-exchange trading. As recently as October, Credit Suisse pegged the off-exchange share of trading at 33.2% and noted that “the percentage of volume executed off-exchange has been remarkably constant over the past five years.’’
The Tabb Group, an industry consulting firm, also put the off-exchange share of equities trading at 33%, for all of 2012, in a “U.S. Equities Market: 2013 State of the Industry” report issued this month.
But off-exchange trading tends to go up when markets are calm, said Dan Mathisson, the Head of U.S. Equity Trading at Credit Suisse.
“We always see off-exchange trading grow in low volatility months,’’ Mathisson said, “and then as soon as volatility spikes, volume migrates back to the exchanges,’’ such as when Standard & Poor’s downgraded U.S. debt in August 2011.
The Chicago Board Options Exchange’s Volatility Index reached a post-credit-crisis low of 12.3 on January 23 and Tuesday was at 13.3. At the height of the crisis, in October 2008, this so-called “fear index” that projects market swings for the next 30 days exceeded 89.
“With volatility so low,” Mathisson said, a surge in off-exchange trading “is pretty normal.’’
The spike, though, is not a one-day phenomenon, according to NYSE Euronext’s tallies of the data reported to FINRA.