The success of dark multilateral trading facilities (MTFs) and order books focused on smaller trades has contributed to smaller average trade sizes, according to research from Fidessa.
In its latest dark trading analysis, Fidessa noted that the European dark trading market has seen record high trading volumes in the past six months, with volume traded on dark order books and dark MTFs up 35% compared to the same period last year.
Average trade sizes have remained broadly stable, though fell dramatically between 2009 and 2012 to their current levels of a little over €1,000 per trade.
The fall in trade sizes has largely been due to some MTFs adopting a strategy of attracting large volumes of smaller trades rather that focusing on block trading, Fidessa said.
"Venues such as Chi-X and UBS MTF have focused on increasing their turnover by attracting large numbers of smaller trades and this has had the effect of reducing the average trade size while the total volume traded in the dark continues to rise," explained Tina Timneva, research analyst at Fidessa and author of the report.
UBS MTF has seen a substantial increase in trading volumes since it launched in 2011, and it leads European dark volumes along with BATS Chi-X’s dark order book.
Increasing awareness of dark venues and increased choice are also keeping a lid on average trade sizes and more traders execute day-to-day trades in the dark.
Timneva added: "As more venues come to market and traders become more familiar with trading in the dark they're more likely to use them to get price improvement on smaller trades as opposed to just block trading.
"However, it's important to note that the growth in dark trading that we've seen in the past few years is not at the expense of lit trading."
Fidessa’s analysis indicates that volume on both the lit market and dark venues has increased since early 2009 when markets hit a low in the wake of the financial crisis.
In the second and third quarters of 2013, dark trading has remained flat, while lit trading decreased slightly.
The analysis does not include trades done via broker crossing networks due to difficulties in obtaining the data on these venues.