European dark multilateral trading facilities (MTFs) sustained their strong start to the year, trading €22.32 billion of equities in February, over double the €11.02 billion traded in the same month last year, according to data provider Thomson Reuters. In total, this represented 2.66% of pan-European trading volumes for the month, compared to 1.4% of European trading in February 2010.
Turnover on dark pools had increased from €15.25 billion in December 2010 to €22.65 billion in January 2011, an increase of 48.5%.
Chi-Delta, the dark pool operated by multilateral trading facility (MTF) Chi-X Europe, accounted for €5.53 billion, or 24.91% of dark MTF market share, retaining its position as the largest dark pool for the fifth month running. However, the mid-point dark pool operated by London Stock Exchange-owned MTF Turquoise was not far behind, trading €5.30 billion, or 23.76%, in February.
Rival MTF BATS Europe, which is awaiting regulatory approval to complete a takeover of Chi-X Europe, traded €2.98 billion, which gave it a 13.78% share of dark MTF trading, followed by block-focused dark pool Liquidnet, which traded €2.7 billion (12.09%)
According to Stephane Loiseau, head of cash equity execution at Société Générale, the sustained growth of dark trading over the last two months reflects a growing comfort by buy-side traders in using dark venues and concern over the increasing flow from high-frequency trading firms in lit markets.
“While our clients may have been a little sceptical of dark pools six to nine months ago, the prevalence of some types of liquidity in lit markets has encouraged a greater appetite for trading in the dark,” Loiseau told theTRADEnews.com. “In addition, sell-side brokers continue to improve their smart order routing technology, which facilitates access to a wider range of markets for more participants.”
The process for connecting to dark venues has also evolved and brokers are proving more selective to reflect their clients concerns, as the number of new markets multiplies.
“It takes time for a venue to reach critical mass in terms of number of users,” said Chris Jackson, head of execution sales, EMEA at Citi. “As the number of dark MTFs has grown, brokers such as ourselves have become more discerning when deciding whether to connect to them. We need confidence that new venues will offer genuine additional liquidity and low levels of toxicity.”
He added that, once selected by algorithmic providers, new venues need to be integrated into the algorithms' processes, with full use made of new order types, suggesting that increase in use will be gradual.
“We expect continued growth in the space as clients realise the benefits of dark trading, in terms of minimising market impact,” he added.