What determines trading volumes of the same stock at different trading venues (exchanges/ECNs/dark pools)? It seems that they vary significantly.


First of all a stock will have more volume traded on the exchange it is primarily listed on. This means when you are a company and you want to raise capital using equity, you go to an exchange (Nyse, Nasdaq, Bats in the US; Euronext, LSE, Deutsche Boerse in Europe for instance) and you pay annual fees to it to be open to trading there. You will be regulated by the national authority of this exchange. It is a choice. Usually you try to choose an exchange capable to make some advertising around your business. For instance Nasdaq is said to be good for tech companies (like Euronext in Europe).

They depending on local rules on competition (Reg NMS in the US, MiFID in Europe), other exchanges and trading facilities can offer your shares to trading too. Here you can think about all other places, including dark pools. It is the local regulation that will allow someone to buy one share on the listed exchange or on another without any difference (in Europe we talk about a "passport" for shares, and by the way Brexit will probably prevent UK based trading platforms to keep this passport).

Traders are now into this game: where do they choose to buy or sell shares when their bank, insurance company, asset manager ask them to do so? Simply where it is the cheapest for them. They look at fees, and at the bid and ask prices, plus the post trading costs (clearing, give up, etc). Some of these sources of gain/cost can vary:

  • trading facilities change their fees to compete, and to attract "big fishes" (tiering the fee schedules)
  • market makers (banks or high frequency firms) are competing at the first limits (bid and ask) of the books (may be because they have agreement with one trading platforms, may be because they have adequate trading rules on another, etc)

All this mixes to give the market share of each venue (ie the fraction of value traded on each platform). Usually there is a monopoly on the opening and fixing auctions, guaranteeing up to 12% of market share to one venue.

As a rule of thumb I would say: between 30 to 70% to the listing venue, then 2 to 3 venues share all the remaining except 3 to 8% that are highly fragmented across very small venues (like dark pools or broker crossing networks). If you want examples have a look at the fragulator: here for Microsoft.

  • $\begingroup$ Thanks! This is very informative. One question: is there any reason why the primarily listed exchange receives more volumes? $\endgroup$ Jun 12 '17 at 3:19
  • $\begingroup$ For a given stock, can I interpret different market shares of exchanges at different days as random? $\endgroup$ Jun 12 '17 at 3:35

Here are a few of factors:

  1. The listing exchange for the stock usually receives a large market share, e.g. tech stocks on Nasdaq, etfs on Arca.

  2. Amount of liquidity available, which itself is correlated with the rebate size.

  3. Various IEX-style gimmicks like "we are the investors exchange"

  • $\begingroup$ 1. Is there any underlying reason for why the listing exchange receives more trading volume? 2. The fee/rebate schedule of an exchange should be the same for all stocks, why some stocks are traded more here and other stocks traded more there? $\endgroup$ Jun 9 '17 at 16:32
  • $\begingroup$ 1. Assume you are some big fund or a bank, and you don't really know much about market microstructure, routing and such, you just want to send a big order to an exchange - sending it to a listing exchange is a simple natural thing to do, and that's what people used to in the past, and to some extent continue to do now. 2. For a given stock the fee/rebate is different at different exchanges, hence the amount of available liquidity is different too. $\endgroup$
    – LazyCat
    Jun 9 '17 at 17:36
  • $\begingroup$ 1. Do these big institutional investors delegate order routing to brokers, or do they route orders by themselves? I know some of them using Smart Order Routing service. 2. I agree with that. $\endgroup$ Jun 9 '17 at 23:41
  • $\begingroup$ 1. - this is too broad a question, not sure what answer you expect. Some use brokers, some use route themselves, some use routing services provided by exchanges.. $\endgroup$
    – LazyCat
    Jun 10 '17 at 1:14
  • $\begingroup$ To whoever downvoted. Care to explain? $\endgroup$
    – LazyCat
    Jun 10 '17 at 1:15

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