US stock trading shifts into the shadows as off-exchange volume surpasses 50% for the first time, raising concerns over transparency and market fairness. 

For decades, the US stock market has been the gold standard for transparency and accessibility. As the world’s largest and most liquid equity market, it has provided a public venue where investors of all sizes and nationalities can trade on a level playing field. However, a dramatic shift is taking place. For the first time on record, the majority of all US stock trading is now happening off-exchange, according to data compiled by Bloomberg.

Rise of Off-Exchange Trading

The Bloomberg Intelligence chart (below) illustrates a striking reversal. Over the past two decades, off-exchange trading—which includes venues like dark pools and internalizers—has steadily risen. Meanwhile, on-exchange activity has declined. As per data, off-exchange trading volumes accounted for a record 51.8% of traded volume in January 2025. This trend highlights a growing preference among market participants for trading in venues where their activity is less visible to the broader market.

Off-exchange trading encompasses various venues, including internal trading desks at major firms and alternative trading systems (ATS). This kind of trading is often favored for its anonymity. Dark pools, for example, allow institutional investors to execute large trades without exposing their intentions to the public. This can minimize the market impact of their trades. Similarly, retail orders routed through internalizers often receive price improvements but remain outside the public exchange system.

Concerns Over Transparency and Fairness

The shift away from public exchanges has significant implications. Public exchanges like the NYSE and NASDAQ have long been the cornerstone of price discovery in financial markets. When a majority of trading happens off-exchange, the transparency that underpins this process is diminished. With less trading activity occurring on lit markets, the prices visible to the public may no longer reflect the true supply and demand dynamics.

Apart from the economic dynamics, this shift raises other concerns:

• Reduced Transparency: The movement of trading activity away from public exchanges diminishes market transparency. Investors and regulators have less visibility into trading activity, making it harder to assess market conditions, identify potential irregularities, and ensure fair competition.

• Information Asymmetry: Off-exchange trading can create information asymmetries, where some investors have access to more information or better trading conditions than others. This can lead to unfair advantages for certain market participants.

• Increased Complexity: The fragmentation of trading across multiple venues increases complexity for market participants, making it more challenging to understand and navigate the market.

What’s Driving the Trend?

Several factors have contributed to the rise of off-exchange trading:

1. Regulatory Changes: Regulations like the SEC’s Regulation NMS, implemented in 2005, unintentionally incentivized the growth of alternative trading systems (ATS) and off-exchange venues.

2. Technological Advancements: High-frequency trading and algorithmic strategies have flourished in environments where execution speed and anonymity are prioritized.

3. Cost Considerations: Off-exchange venues often provide lower transaction costs for large institutional investors compared to traditional exchanges.

4. Retail Participation: The rise of zero-commission trading and retail platforms has funneled a significant portion of retail order flow to internalizers, bypassing exchanges entirely.

The Road Ahead

This shift poses a challenge for regulators tasked with ensuring fair and efficient markets. The SEC and other agencies may need to revisit existing frameworks to address the implications of reduced transparency. Potential reforms could include increased reporting requirements for off-exchange venues or adjustments to rules governing market fragmentation.

For investors, the changing landscape underscores the importance of understanding how and where their trades are executed. While off-exchange trading offers certain advantages, its rise highlights a growing divide in market access and information.

As the US stock market continues to evolve, balancing innovation with the core principles of transparency and fairness will be critical. The dominance of off-exchange trading is a testament to the dynamic nature of financial markets—but it also serves as a reminder that progress often comes with trade-offs.

Originally published at Substack.