Is Buy-Side Order Flow Really Going Dark?

According to estimates by Tabb Group and KBW, approximately one-third of U.S. equities volume is executed off-exchange, and some market observers indicate that this figure is likely to increase. But others argue that the percentage of flow going into dark pools and internalization has been and will continue to be relatively stable.

"There is no trend toward people putting more order flow in dark pools," insists Matt Samelson, principal at Woodbine Associates, a capital markets research and consulting firm in Stamford, Conn. According to Samelson, the percent of order flow executed off-exchange has varied within a five-point range, from 27 percent to 34 percent per month, for the past two years. "What you're seeing as off-exchange volume is a function of the number of venues out there, of market structure and economics," he says.

"It's not that the buy side is going to the dark," Samelson adds. "The buy side is going everywhere. They're looking for liquidity."

[With U.S. equity volumes in the dumps, is the buy side increasingly searching for liquidity in dark pools?]