Professor Weaver's research on "Dark Pools" featured in Wall Street Journal

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Date: 
Friday, February 15, 2013
Location: 
New York, NY

From The Wall Street Journal:

Trading in dark pools and other off-exchange venues has been rising in recent years. About 14% of all stock trades in the U.S. now take place on dark pools, up from 3% in 2007, according to Tabb Group, which tracks electronic trading. Total trading away from exchanges hit a record of 37% of all trading volume in January, according to NYSE Euronext NYX -0.65%.

A rise in off-exchange trading could hurt investors, some said. A 2010 study by Rutgers Business School professor Daniel Weaver found that a NYSE-listed stock with 40% of its volume trading in the dark costs investors about $4 million per stock a year.

The reason: With more investors trading in the dark, fewer buy and sell orders are being placed on exchanges. That can translate into worse prices for stocks, because prices for stocks are set on exchanges.

Exchanges have been scrambling to turn the tide. One tactic in recent years has been to cater to high-frequency firms in order to capture the rivers of buy and sell orders they provide. With more orders on the exchanges' books, investors might get better prices and find it easier to trade, they hoped.

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TAGS: Daniel Weaver Finance The Wall Street Journal The Whitcomb Center for Research in Financial Services