Dark pools hit hard by Citi reverse stock split


Citi's reverse stock split had a huge effect on high-frequency traders, who were drawn to the low-priced, pre-split stock. The reverse split's impact has been felt across the market, as the reverse split has led to a decline of about 4 percent in all domestic stock trading since early May, according to Rosenblatt Securities.

While the biggest impact was felt by high-frequency traders, who traded massive shares of the cheap stock to generate maker-taker rebates from certain exchanges, the effect was also felt in the dark pool universe, according to the MarketBeat. "A higher-than-average proportion of Citi's shares traded away from major stock exchanges, due in part to the more flexible pricing that is possible in dark pools and other exchange alternatives. Unlike the exchanges, those venues allow prices in subpenny increments, which gives traders more opportunities to profit from a low-priced stock." Citi volume market share on off-exchange facilities fell from 40 percent in the week before the reverse split to less than 27 percent four weeks later.

So what does this mean for the big exchanges? They ended up with a bigger share of "of a much smaller pie. Nasdaq's share more than doubled while the New York Stock Exchange's leapt more than 50 percent, the same data show. Total off-exchange trading volume came in at 29.5 percent of US equities volume for the first half of June, according to data from Raymond James & Associates. That's the first dip below 30 percent since August."

All this begs the question: Is there another higher frequency stock darling in the making? Bank of America, anyone?

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