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Markets Update: Retail Push Off-Exchange Volumes Close to 50%

The U.S. market is unique in the proportion of trading and direct stock ownership that retail investors have.

The U.S. market is unique in the proportion of trading and direct stock ownership that retail investors have. It’s been reported that retail direct holdings add to $21 trillion to the market and that their trading accounts for as much as 10% of U.S. trading liquidity. Not far short of the level of trading that mutual funds do.

Late last year, retail brokers mostly cut commissions to zero. After that, data (Chart 1) shows that retail trading increased. However with the selloff caused by COVID-19, it seems that trading has accelerated. Most retail brokers report trading levels more than doubled since six months ago.

That’s consistent with other data that shows record levels of new retail accounts in March and April.

Chart 1: Daily average trading volume by leading retail brokerages has increased significantly

Daily Average Trades by Major Retail Brokerages

At the same time, we have recently seen increases in off-exchange market share, which have topped 50% intraday.

We’ve talked before about how a large percentage of retail orders are executed off exchange. Given the trends above, it seems retail trading could be responsible for increase in off-exchange trading.

Overall, FINRA TRF data indicates retail brokers have contributed off-exchange liquidity gains of around 7%, since the selloff started in March. In contrast, dark pools (ATS) and other institutional block trading (other non-ATS) are flat.

Chart 2: Growth of off-exchange trading volume has accelerated since the coronavirus pandemic

Off-exchange as percent of all volume

Something that we all need to keep in mind is that exchange prices ensure all this off-exchange liquidity is filled at competitive prices. That’s why lit prices and competitive quotes are an important part of market structure: they protect both issuers and investors.

Phil Mackintosh


Phil Mackintosh is Chief Economist and a Senior Vice President at Nasdaq. His team is responsible for a variety of projects and initiatives in the U.S. and Europe to improve market structure, encourage capital formation and enhance trading efficiency. 

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