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 Post subject: Dark-pool trading reaches record levels in Europe
PostPosted: Thu Aug 15, 2013 6:08 pm 
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Location: Canada ... 2013-08-12

By Anish Puaar

European share trading taking place in anonymous, off-exchange venues known as "dark pools" reached its highest-ever level in July, amid lower volatility and a growing proliferation of high-frequency trading on the platforms.

About 10.3% of all European equities trading last month took place on these venues, according to data from Thomson Reuters. It is the first time the proportion of activity executed in dark pools has breached double figures, and exceeds the previous high of 9.1% in January.

By value, trades worth EUR75.1 billion were transacted on these venues in July, 12% higher than the value traded in dark pools in January and 28% higher than in July 2012.

The Thomson Reuters data includes activity in "dark" multilateral trading facilities, that are operated by exchanges such as the London Stock Exchange Group and Bats Chi-X Europe and brokers, as well as those run by investment banks in the form of broker crossing networks.

Dark pools do not display prices to the market, and allow investors to place orders anonymously to help minimise market impact. Trading often shifts to the venues in quieter periods, when institutions have increased confidence in trading away from exchanges or 'lit' markets.

Mark Goodman, head of quantitative electronic services at Societe Generale, which operates two European dark pools, said: "We find that lower volatility generally leads to more trading in dark pools. If clients are not concerned about stock prices moving away from them, they are generally more willing to rest orders in dark venues."

Other practitioners said that an increase in dark trading activity by proprietary trading firms, which typically deal in small-sized orders and trade at high-speeds, had also contributed to their growth.

James Baugh, head of European marketing and sales at the LSE Group, said: "An increase in proprietary trading strategies across a number of dark multilateral trading facilities and broker-owned networks has increased dark trading volumes. But that is also leading to keener interest in venues that offer a differentiated approach, such as those that offer trading in larger sizes."

Others have attributed the rise to the growing maturity of Europe's dark pool markets compared to the U.S., where dark pools account for about 15% of equities trading, rather than volatility.

Andrew Upward, a market structure analyst at New York-based brokerage Rosenblatt Securities, said: "The inverse correlation between volatility and dark pool market share is yet to come to Europe in the same way as it has in the U.S."

European regulators are attempting to curb dark pool trading as part of new rules in the second version of the Markets in Financial Instruments Directive.

The rules, which are being debated among European regulators, could limit the proportion of stock trading done on some types of dark MTFs and could also place restrictions on broker-run dark pools.

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