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December 14, 2007

Predicting NYSE and Nasdaq's Flows

By Hillary Jackson

While NYSE Group and Nasdaq are likely to see their share of the U.S. equities market continue to dwindle in the near term, they will reclaim territory over the next two to three years as the overly fragmented marketplace begins to consolidate, according to Boston-based research firm Aite Group. NYSE and Nasdaq represent 75 percent of all equities markets in terms of daily trade volume, the firm said in a report released in September.

Meanwhile, single broker-dealer dark pools represent close to 10 percent of the U.S. equities market, and independent block trading platforms and broker-owned crossing engines-or dark pools-represent the remaining 15 percent. Aite Group predicts the market share of such dark pools will grow steadily to more than 20 percent by 2011, but the firm also believes that NYSE and Nasdaq will start to gobble up ECNs such as BATS and Direct Edge.

"Aite Group expects the next two years to be driven by market consolidation and the search for a sustainable business model to achieve long-term profitability. In the process, most of the smaller players will simply go out of existence, unable to garner enough liquidity to remain competitive," the report said. "For those rare successful firms, however, they might find themselves working under the banners of Nasdaq or the NYSE Group, enjoying the return on investment that they have made over the last two years."