US dark pool trading more than doubled in 2008, according to an analysis by boutique agency brokerage Rosenblatt Securities.
The latest edition of ‘Let there be light’, the firm’s monthly dark liquidity tracker, noted that trading activity in 18 of the most significant US dark pools accounted 8.9% of December 2008’s total consolidated equity volume, up from 4.04% in January. A handful of dark pools operational in December, however, either had not launched or did not report their figures to Rosenblatt during January.
The report particularly noted the success of Level ATS, which saw a 115% increase in volumes through the year, Knight Link (up 107.6%), Credit Suisse Crossfinder (116.9%). Direct Edge (270.7%) and Getco Execution Services, which has become the fourth largest dark pool in terms of average daily volume, in the US since its launch on 19 March.
According to Rosenblatt, Direct Edge’s Enhanced Liquidity Provider (ELP) programme, which aggregates non-displayed orders from other dark pools, and new ROUD and ROUE dark order types, were a major driver for the platform’s growth.
The report also reiterated it did not foresee dark pool consolidation in the US, despite clients’ desire for less fragmented markets.
“We’ve always disagreed with this (consolidation) thesis, which improperly uses the consolidation of ECNs (electronic communications networks) in the early 2000s as a model,” read the report. “Unlike ECNs, many dark pools exist primarily to facilitate internalisation and reduce exchange costs for big brokerage firms. Additionally, independent dark pools are not subject to the same margin pressures that drove ECNs to consolidate, because of their generally higher per-trade fees.”
For 2009, the study predicted that broker-owned and market-maker sponsored venues will continue to dominate and fundamentally change the nature of dark pool trading by offering “ultra-fast, far cheaper, algo-friendly venues”, while also expecting the convergence of block-only and algo-friendly approaches.