Traders work on the floor of the New York Stock Exchange during the afternoon of April 4, 2014 in New York City. (Andrew Burton/Getty Images/AFP)
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NEW YORK: Fears that high-speed traders have been rigging the U.S. stock market went mainstream last week thanks to allegations in a book by financial author Michael Lewis, but there may be a more serious threat to investors: the increasing amount of trading that happens outside of exchanges.Some former regulators and academics say so much trading is now happening away from exchanges that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is. When the average investor, or even a big portfolio manager, tries to buy or sell shares now, the trade is often matched up with another order by a dealer in a so-called "dark pool," or another alternative to exchanges.Those whose trade never makes it to an exchange can benefit as the broker avoids paying an exchange trading fee, taking cost out of the process. Around 40 percent of all U.S. stock trades, including almost all orders from "mom and pop" investors, now happen off exchange, up from around 16 percent six years ago.Around 45 dark pools and as many as 200 internalizers compete with 13 public exchanges in the U.S.A major concern with off-exchange trading is that brokers who internalize trades and offer dark pools do not provide any data to the market before the trade is executed.
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