What Is an Upstairs Market?

What Is an Upstairs Market?

5 Min.

A network interlinking major corporations and institutional investors characterizes the upstairs market. In this arena, substantial trade volumes or block orders transpire discreetly beyond the conventional trading floor setting. The engagement of intermediaries adds a layer of security against insider trading, differentiating it from the downstairs market or conventional stock exchanges. Regulatory oversight extends to the impact of upstairs market activities on retail investors.


The concept of an upstairs market alludes to an intricate web interlinking major corporations and institutional investors. Within this framework, substantial transactions or block orders transpire discreetly, sidestepping the conventional conduit of stock exchanges. Consequently, these dealings evade the scrutiny of fellow market players. Facilitating these covert exchanges are adept brokers who facilitate seamless transactions between purchasers and vendors. The voluminous magnitude of these clandestine trades significantly shapes the overall trading volume of the market.

Upstairs Markets Explained

The realm of upstairs markets revolves around intricate networks of trading desks that orchestrate substantial trade volumes, often referred to as upstairs trades. These transactions, by virtue of their sheer scale, are typically executed by institutional investors, encompassing mutual funds, banks, pension funds, insurance firms, and brokerage entities.

Diverging from the conventional trading floor, these exchanges transpire beyond the public eye, carried out either through electronic channels or telephonic communication. Consequently, this discreet mode of operation maintains stability, forestalling dramatic fluctuations or disruptions in securities prices within the market.

The strategic utilization of proficient intermediaries, effectively removing the involvement of retail investors, serves as a deterrent against undesirable practices like front-running. By preemptively averting scenarios where a broker exploits insider information to manipulate stock prices, this approach safeguards against potential adverse impacts on trade execution and stock valuation.

Unveiling Obscured Trading Arenas

Dubbed as dark pools, these enigmatic markets have given rise to the evocative phrase "dark pools of liquidity." Functioning as discrete financial exchanges or networks, these arenas serve as clandestine platforms for trading activities meticulously orchestrated between participating entities. Comparable to upstairs markets, these covert channels empower investors to engage in substantial transactions while shrouding pertinent details from public scrutiny. Despite their seemingly clandestine nature, both dark pools and upstairs trades are squarely within the boundaries of legality.

Regulatory oversight, however, remains vigilant. A snapshot from 2014 unveiled that transactions within the upstairs market contributed to 15% of total trading engagements within the United States, with a plausible trajectory of further escalation.

Doubts have been cast on whether these practices compromise the transparency and inclusivity of financial markets for retail investors, prompting enforcement of more rigorous guidelines to curtail dark pool trading. Illustratively:

  • In October 2012, Canada introduced stringent regulations curtailing the circumstances under which upstairs market transactions can transpire.
  • Following suit, Australian regulators implemented akin restrictions in May 2013, resulting in a pronounced decline in upstairs-market activities in both nations.

Stateside, U.S. regulators also question the potential detriment to retail investors and overall trading integrity. Remedially, the Financial Industry Regulatory Authority (FINRA) spearheaded an initiative mandating the weekly disclosure of transactions transpiring within alternative trading systems (ATS). This commendable effort was greenlit by the U.S. Securities and Exchange Commission (SEC) in 2014. The presence of alternative trading systems, permitting off-exchange trade without imposing participant conduct regulations, elicits regulatory scrutiny, underscoring the vigilance maintained over these arenas.

Comparing Upstairs and Downstairs Markets

The existence of an upstairs market, characterized by its confidential nexus encompassing institutional investors, intermediaries, and brokerage entities, naturally signifies the presence of a corresponding downstairs market, which materializes as stock exchanges.

Downstairs markets, more commonly recognized as stock exchanges, play a pivotal role in instilling liquidity into the market dynamics. Within these bustling domains, transactions are orchestrated by modest investors, market makers, and traders physically present on the trading floor. Diverging from the upstairs market with its substantial trading volumes, activities within the downstairs market tend to involve smaller-scale trades. Intriguingly, trade particulars, including prices and stock quantities, are transparently accessible within this paradigm, setting it apart from its discreet upstairs counterpart.

Merits of Upstairs Market Dynamics

The advantages of embracing an upstairs market arrangement become evident when considering scenarios where a hedge fund seeks to divest its position in a security. When such a fund submits a significant sell order to the stock exchange, it risks inadvertently signaling a bearish sentiment to fellow market participants. Subsequently, this signal can trigger a cascade effect, prompting other investors to drive down the security's price and consequently resulting in a less favorable sale price for the hedge fund.

The upstairs market not only mitigates such signaling concerns but also presents a distinct advantage in the form of reduced transaction fees, especially for institutional investors. By executing sizable block orders with a limited number of institutional counterparts, the entities involved stand to benefit from notably diminished total commissions and related charges, in stark contrast to engaging with a larger array of smaller counterparts.

Furthermore, intricate trading strategies such as simultaneous program trades find their optimal execution avenue within the upstairs market, often necessitating the expertise of proficient intermediaries for effective strategy implementation.


The upstairs market interlinks major corporations and institutional investors discreetly, facilitating substantial trades and block orders. Intermediaries guard against insider trading, distinguishing it from conventional stock exchanges. Regulatory oversight extends to its impact on retail investors.

Upstairs Market
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Hexn operates under HEXN (CZ) s.r.o. and HEXN Markets LLC. HEXN (CZ) s.r.o. is incorporated in the Czech Republic with the company number 19300662, registered office at Cimburkova 916/8, Žižkov, Praha. HEXN (CZ) s.r.o. is registered as a virtual assets service provider (VASP). HEXN Markets LLC is incorporated in St. Vincent and Grenadines with the company number 2212 LLC 2022, registered office at Beachmont Business Centre, 379, Kingstown, Saint Vincent and the Grenadines