Dark trading declines in Canada following new rules

New rules limiting dark pool use in Canada have had an immediate impact on non-displayed volumes, according to figures from boutique brokerage Rosenblatt Securities.

New rules limiting dark pool use in Canada have had an immediate impact on non-displayed volumes, according to figures from boutique brokerage Rosenblatt Securities.

The proportion of overall equity trading in Canada that took place in dark pools reached 3.54% in October, 37.5% lower than the 5.67% recorded the previous month.

According to Rosenblatt’s figures, the two largest Canadian dark pools have been hit the hardest. Agency broker ITG’s MatchNow and Alpha’s IntraSpread previously accounted for 97-99% of non-displayed volumes in the country and have sharply declined as the price improvement they offer is not considered ‘meaningful’ under the new regulations. Between September and October, average daily volume on IntraSpread was down 56.24%, while MatchNow lost 28.9% of average daily volume, according to the Rosenblatt data.

The new rules came into force on 15 October and require orders under 5,000 shares or C$100,000 in value to offer a full tick of price improvement (reduced to half a tick for those stocks that have a spread of one tick). The rules also give lit orders priority over dark orders that reside in the same venue.

Rosenblatt predicts a further reduction in Canadian dark pool volumes for November, the first full month the rules will be in force.

Many market participants have anticipated that the new dark trading rules will to lead to a migration of trading from Canada to US venues that also list Canadian stocks but are not affected by the regulations.

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