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Stock trading grows more opaque

NEW YORK — Wall Street is embracing its dark side.

As the stock market climbs, trading has increasingly migrated from established bourses like the New York Stock Exchange to private platforms, including dark pools, that are largely hidden from public view. The shift is helping big traders hide what they are doing, and regulators worry the development could obscure true prices and scare away ordinary investors.

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The movement has gathered force recently. The portion of all stock trading taking place away from the public exchanges hit new highs over the past few weeks, amounting to nearly 40 percent on several days, up from an average of 16 percent in 2008, according to Rosenblatt Securities.

The trend has bucked the government’s broad effort to move more of the financial industry out of back rooms and into the light. The increasing opacity of stock trading in the United States, long the most transparent place in the financial world, is troubling for investors and regulators.

“We’ve been having a lot of discussions about whether we are reaching a tipping point between lit and unlit markets,’’ said Thomas Gira, head of market regulation at the Financial Industry Regulatory Authority, an industry-financed regulator.

In March, Australia introduced rules to limit trading off-exchange, following the lead of Canada, which put regulations in place last fall. The US Securities and Exchange Commission has so far declined to act.

Concerns are also evident in the industry. A few dark pools have recently been advertising tools that promise to keep out ‘‘gaming’’ and ‘‘toxic’’ trading practices.

Dark pools, like public exchanges, give investors a place to connect with buyers and sellers, but the pools are subject to less stringent regulation than public exchanges. Often run by big banks, dark pools do not require buyers and sellers to publicly announce their intention to trade stocks, allowing traders and investors to hide behind a veil that only the operator of the pool can penetrate.

That appeals to a pension fund that wants to buy a million shares of Ford stock, for instance, because it allows the fund to avoid tipping off competitors who could push the price up.

Investors also have said that they have moved more trading into the dark because they have grown more distrustful of big exchanges like the NYSE and Nasdaq, which have been hit by technological mishaps and become dominated by high-frequency traders.

But the biggest factor is the ongoing decline in stock-price volatility, traders say. When share prices are rising or falling sharply, investors want quick, reliable trades, leading to a preference for the safety of an exchange. In calmer trading, the anonymity of the 30-plus dark pools is attractive. And dark pools are generally cheaper.

Dan Mathisson, operator of the largest US dark pool, Credit Suisse’s CrossFinder, said regulators should not introduce rules just out of fear. Yet regulators and long-term investors fear the movement away from exchanges will diminish what made the US market enviable: a public auction process. In off-exchange trading, investors can’t see what trades are available and as a result are not encouraged to offer a better price.

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