Dark pool volumes slip in US, Europe
Dark pools both in Europe and the US have lost market share in
recent months due to high volatility, according to a new report by agency
broker Rosenblatt Securities.
In the US, the 19 non-displayed venues tracked by Rosenblatt
accounted for 13% of consolidated US equity volume in May, down from 13.61%
the previous month. Of these pools, only two managed to gain market share that
month: Liquidnet, and ConvergEx VortEx, which increased month-on-month volumes
by 12.61% and 12.43% respectively.
At the same time, the volatility measured on the Chicago Board
Options Exchange’s Volatility Index (VIX) climbed to 17.84%. Rosenblatt notes
that dark pool market share has been inversely correlated with the VIX average
daily since mid-2009.
Pools at bay
In Europe, dark pools also lost market share. The 18 venues
in Rosenblatt’s European database executed 3.09% of consolidated pan-European
value, down from 3.29% the previous month. However, since some broker crossing
networks (BCNs) report neither to Rosenblatt nor market data provider Markit,
Rosenblatt estimates that the true total of dark pool trading activity in
Europe in May could have been as much as 4.24%-4.75% of consolidated turnover.
The 18 dark pools that report to Rosenblatt executed an average
of €2.74 billion per day in May. Rosenblatt tracks three BCNs, 12 MTFs and
three exchange dark pools. Rosenblatt estimates that the three BCNs that do not
report to Rosenblatt (UBS PIN, Morgan Stanley’s MS Pool and J.P. Morgan's JPM-X) handled about €510-638 million per day in May. When these results are
combined, Rosenblatt estimates a grand total of €3.25-3.38 billion dark trading
in Europe per day, or 3.66-3.80% of consolidated value traded.
However, according to figures provided by Thomson Reuters,
dark trading made up for 6.77% of European equity trading for the entire month in
May, with roughly equal activity divided between BCNs and dark multilateral
trading facilities (MTFs) – a monthly total of some €24.45 billion and €28.77
billion respectively. The Thomson Reuters figures incorporate Markit’s figures
The exact figure for BCNs remains difficult to establish
with certainty due to the lack of publicly available data. Although six BCNs report to Markit, individual
figures are usually buried in the aggregate Markit BOAT systematic internaliser
or OTC categories, making it impossible to cleanly identify the trades from
different BCNs without private data.
Rise of the bank
UBS MTF, the dark MTF owned by Swiss bank UBS, was the largest
dark pool in Europe in June, accounting for almost a quarter of the region’s
dark trading alone, according to data from Thomson Reuters. Already previously reported
by theTRADEnews.com in April, the success of the broker-owned platforms was
also highlighted in the Rosenblatt study, which noted that bank-owned dark
pools accounted for 71% of dark turnover in Europe in May.
Rosenblatt also noted the success of Deutsche Bank’s Super X
dark pool, which grew by 6.47% from April to May. By contrast, Chi-Delta, the
dark pool operated by BATS Chi-X Europe, declined by 12.77% in May versus the
Part of the explanation for the rise in market share for
broker owned platforms is the recent improvements in functionality introduced
by some of the newer platforms, according Sabine Toulson, managing director, IFS at market data provider LiquidMetrix.
comparing BCN performance with performance on MTF dark pools is complicated by
the fact that BCNs usually offer a richer set of execution options, as many
BCNs offer execution versus European best bid and offer rather than just
primary market and also execution at touch prices rather than always mid-price,” said Toulson. “Until recently
most MTF dark pools only offered primary mid-point, but Instinet BlockMatch and
UBS offer more options now.”
not all market participants agree that bank-owned dark MTFs offer the best
possible execution choice. Mark Goodman, head of quantitative electronic
services at Société Générale Corporate and Investment Banking, suggests that
many clients value BCNs over MTFs, because unlike MTFs, BCNs have discretion
over which participants are allowed access.
like dark pools with broker discretion,” he said. “As an MTF, you have to grant
access to members on a non-discretionary basis. But that discretion is what
gives investors confidence about the quality of the counterparties they are
added that although a mid-point cross in a dark pool should in theory help
long-term investors to achieve a successful trade, the benefits of doing so
might be outweighed, if for example that market contains high-frequency market
While the European
Parliament is currently discussing proposals to restrict
the activities of BCNs, in the US, NYSE Euronext and Nasdaq OMX Group are
urging US regulators to clamp down on broker dark pools. In a written
presentation to the House Committee on Financial Services last month, the two
exchanges argued that dark pool operators be required to provide better prices
than exchanges or offer public quotes. Otherwise, they suggested, exchanges
faced becoming destinations of “last resort”, since they are subject to
different, more stringent rules than non-displayed markets.