You need public trades to enable price discovery to make the whole thing work.
In a way it is akin to Google's search AI. If it doesn't pay (with some exceptions, ahem) for people to write and publish the ongoing stream of DIKW* Google won't have anything left to scrape and their business model slowly ossifies.
From the Times of London, May 23:
Charlie Walker, deputy head of the LSE, said a fall in trading through official channels could make it difficult for share prices to be set effectively
A rise in share trading on so-called dark markets risks destroying the integrity of prices on the London Stock Exchange, one of its most senior officials has warned — raising fears that share trading could break down without regulatory intervention.
Charlie Walker, deputy chief executive of the LSE, said he was “deeply concerned” about the fall in share trading through official channels because, if it continued, it could become difficult for the prices of shares to be set effectively.
Major investors can trade privately with each other via banks and major institutions while using the share price set by other investors on the LSE. Some of this trading is called dark trading; trades that take place on the exchange are known as “lit”.
Walker said that the proportion of share trading taking place directly on exchanges — including rivals such as Aquis — was the lowest of any major market globally. “The UK now has the lowest proportion of lit trading in any major market we can find. Around 30 per cent is regularly traded via an exchange. We are deeply concerned about it.”
His concern is that if formal trading activity becomes too low, the prices set on exchanges will no longer be realistic. “If that continues to fall, at what point does price formation break down?”
When buy and sell orders arrive at exchanges they are matched to determine the price of the stock, but if volumes fall the price can be harder to determine if the difference between buy and sell orders becomes too wide.
These prices are also used by retail investors, who trade in much smaller quantities than professional investors. “This goes against the spirit of public markets, which should be equally accessible to anyone,” said Walker....
....MUCH MORE
Also at The Times:
Five ways to stem the exodus from London’s stock markets
*DIKW =Data, Information, Knowledge, Wisdom
