Dark-pool equity trading climbs 45 percent in Europe

Controversial off-exchange trading has jumped 45 percent over the last six months, according to research that highlights the growing popularity of dark-pool trading.

The total value of shares traded through these venues – operated by firms including UBS, Liquidnet, Turquoise and Bats Chi-X Europe – rose from €143 bn to €207 bn ($283 bn) in the second and third quarters of 2013, reports UK trading technology firm Fidessa.

Meanwhile, the total value of shares traded across all European platforms in the same period remained at around €4.8 tn. Fidessa’s quarterly dark-trading report estimates the value of the average dark trade has climbed from €6,639 to €9,150.

Steve Grob, director of group strategy at Fidessa, says some of the push toward dark trading is ‘simply that more institutional flow has returned to markets (while high-frequency trading has actually leveled off). This brings with it larger block-sized orders that are best traded in the dark.’ 

Grob stresses that ‘just because dark-pool trading is going up it doesn’t mean it is ‘coming from somewhere’; rather, it means institutional trading is just getting healthier.’

According to the Financial Times, ‘market participants’ estimate that by including bank-owned venues – which were excluded from the Fidessa survey – dark trading would account for roughly 8 percent of all trading in Europe, just over half the levels seen in the US.

Policymakers in Europe want to cap daily dark trading at 4 percent of total trading in each stock in the European Union, and total aggregated dark pool transactions at 8 percent of all European trade amid concerns over transparency.

‘As expected, the stocks most heavily traded on dark pools include some of the most liquid,’ states the Fidessa report. Vodafone tops the list, with dark-stock consideration of €3 mn. It is followed by Nestlé at €2.6 mn and Sanofi with almost €2.4 mn.