Dark pool trading made up over 5% of pan-European equity trading market share for the first time in April 2011, according to data provided by Thomson Reuters Equity Market Share Reporter.
Over the past 12 months the proportion of trading in Europe conducted in the dark has increased from 1.83% in April 2010 to 5.24% in April 2011, reflecting in part the increased comfort that buy-side traders have with using dark pools.
Due to the fragmented nature of the European market, buy-side firms now often break down larger orders into smaller parts that are traded in broker crossing networks and dark multilateral trading facilities to minimise market impact.
However the use of non-displayed venues to trade smaller orders has been criticised in some quarters. Kay Swinburne MEP, wrote a paper, ”Regulation of trading in financial instruments: dark pools etc.' which was adopted by the European Parliament's Committee on Economic and Monetary Affairs on 9 November 2010, proposing an investigation into setting a minimum order size for dark pools.
The concern voiced by Swinburne was that hidden orders damage price formation and that smaller orders do not typically require protection from market impact, so a lot of the trades executed in the dark were unnecessarily harming price discovery.
Her paper will support the European Commission's MiFID II proposal, which is expected to be published in July 2011. The consultation for the proposal had asked whether a size threshold should be applied to orders that use MiFID's reference price waiver and proposed a new regime governing broker crossing networks.
However two pieces of research published in February 2011, ”Measuring dark pools' impact' by broker Credit Suisse and agency broker ITG's ”ATSs in Europe: Post-MiFID performance', have since indicated that trading in dark pools does not harm price discovery, and in fact lowers the overall cost of trading.
Of the €39 billion conducted in the dark in Europe over April, 47.39% was conducted on broker crossing networks according to Thomson Reuters with the rest executed on block-crossing networks and dark multilateral trading facilities.