Equities trading soars as traders warm to dark pools

A new report from the Association of Financial Markets in Europe (AFME) documents trading behaviour in 2015.

Equity trades on European exchanges and multilateral trading facilities (MTFs) were up 28.7% in 2015, compared to 2014.

Figures from the Association of Financial Markets in Europe shows that, in total, European venues witnessed €13.1 trillion in turnover value during 2015, compared to €10.2 trillion a year earlier.

MTFs saw the highest percentage growth in equities trades, up 35.6% year on year at €6.3 trillion, compared to €4.7 trillion for the whole of 2014.

Data from BATS Chi-X cited in the AFME report shows that the value traded in dark pools as a proportion of turnover on exchanges and MTFs also climbed from 7% of trades at the end of 2014 to around 7.5% a year later.

Neil Bond, partner at Ardevora Asset Management, said while there remain significant liquidity issues, the data suggests that market participants are becoming more comfortable trading ‘in the dark’.

He said: “Liquidity is still one of the toughest issues traders face today. Despite the reputation of dark pools, clients are realising that they can source more liquidity in non-displayed venues safely if they apply the right constraints and monitor properly.  I believe that price moves after a trade are more prevalent on lit markets than on non-displayed markets.

“There have been new developments in  non-displayed trading such as conditional order type venues like Turquoise BDS. The primary exchanges have also started to improve their on non-displayed liquidity offerings such as LSE offering pegged at mid hidden order types with minimum execution size (MES) for large in scale orders. 

“At the moment these order types are not widely used but I think that is partly an awareness issue and partly because new regulations are not yet in effect. Euronext have also enhanced their hidden order offerings.”

Bond said that more people are also beginning to use dark pools for making ‘iceberg’ orders - single orders, which are divided up to disguise the size of the actual quantity being traded.

He added: “When the dark pool caps come into effect and BCNs are restricted then more use of these alternative venues and order types will help clients solve the liquidity conundrum.”

The AFME report showed a positive correlation in the number of dark trades of indexed shares on the FTSE 250, FTSE 100 and the DAX throughout 2015. 

However, dark trading as a proportion of total turnover was broadly flat on the Amsterdam Exchange index (AEX) when December 2014 was compared to the same month in 2015.