Despite the growth of ECNs, dark pools and alternative trading systems (ATSs) traditional exchanges will retain a large slice of the US market share for equities trade volume, according to an impact report from Aite Group.
Exchanges currently make up approximately 75% of the US market share for equities trade volume, versus 25% for ATss.
Aite Group says it expects an increasing decline in exchange market share for the foreseeable future as they struggle against the more price-competitive ECNs and dark pools, but by the end of 2011 the exchange market share should stabilise at approximately 62%.
Despite the growing number of ECNs and ATSs, over the long-term success will follow liquidity and many of the smaller players will simply go out of business, says Aite. The few successful remaining ATSs will likely find themselves being bought up by the major exchanges such as Nyse Euronext and Nasdaq.
"Navigating through the market clutter will not be easy in the short-term as liquidity migrates from one location to another," says Sang Lee, managing partner at Aite Group. "Market consolidation appears inevitable, driven by expected pricing compression and the natural migration of liquidity into three to four largest players."
The publication of the report coincides with a move by Nyse Euronext in the US to revamp its pricing and offer higher rebates to investors in a bid to counter lower prices offered by rivals such as Bats Trading. The exchange has also announced plans to shut down two of its four remaining trading floors in a further efficiency drive.
Earlier this month, the Boston Equities Exchange, an all-electronic trading venue set up last year by the Boston Stock Exchange and five major Wall Street banks, closed its doors for business after failing to attract sufficient market share from incumbents.