Market share for continuous lit volumes is continuing to decline as dark market dynamics shift and the closing auction increases in importance, Liquidnet’s latest liquidity landscape report has found.
Lit primary continuous venues recorded the lowest market share value to date, at around 29% in September, according to Liquidnet.
In addition, total lit volumes for Q3 reached record lows, amounting to 45.5% of overall volumes in September, compared to 57% in 2020. Direct year-on-year comparisons for Q3 represented 47.5% in 2024 versus around 50% in 2023.
Liquidnet attributed the continued decline to record high investments in passive ETFs and trading in the closing auction.
The closing auction was noted for its major role in lit markets, with over 38% of total lit volumes occurring through the mechanism.
Market share at the close has continued to grow, according to Liquidnet’s report, averaging 25% of total liquidity in Q3. This was down slightly from Q2 where volumes reached around 26%, but still up year-on-year for the same window.
The average over the year-to-date period has also increased from 22.5% last year to 25% this year.
“It is a common maxim that liquidity begets liquidity, and it seems likely that other investors are also choosing to move more flow to the end of the day,” said Liquidnet in its report.
“Popular algorithms that base their volume curves on historical data compound this volume shift by allocating an increasing portion of their volume to the close. This helps reduce their slippage against the VWAP benchmark.”
Dark volumes also showed increased activity this year – following a plateau for a few years – reaching almost 11% of total trading volumes in Q3. Within this bracket, volumes peaked at 11% in July.
Q3 2024 trading volumes of just under 11% were up from just under 10% in Q2 2024 and around 9% in Q3 last year.
“Dark market activity, after years of maintaining its 8 to 10% market share, has started to increase,” added Liquidnet. “This is in line with the renewed interest in block liquidity, where above-LIS fills have witnessed annual growth.”
In recent weeks, the push towards dark trading has seen increased interest from market participants.
Read more: Deutsche Börse’s Maximilian Trossbach on their new dark pool
SIX’s BME launched a new dark pool this week in a bid to provide an additional source of liquidity for Spanish securities. Elsewhere, Deutsche Börse’s new dark trading offering also launched on Monday.