European dark trading facilities gain traction

Liquidnet, a buy-side-only non-displayed multilateral trading facility (MTF), set a new record for daily principal traded in Europe on 2 June.
By None

Liquidnet, a buy-side-only non-displayed multilateral trading facility (MTF), set a new record for daily principal traded in Europe on 2 June. The MTF traded £545.24 million, beating its previous one-day record of £520.80 million, set in December 2007.

Meanwhile, German exchange group Deutsche Börse has announced that its Xetra MidPoint non-displayed order book, launched on 24 November last year, achieved an average daily order volume of 12,000 in May, and a peak level of 28,000 orders. The highest daily turnover achieved on the book to date is $40 million. Xetra MidPoint offers automatic execution at the mid-point of the bid-offer spread.

John Barker, managing director of Liquidnet Europe, sees his platform’s new record as a sign of resurgence in trading volumes following a crisis-induced slump. “This new record is a further sign that volumes are returning to the broader market,” Barker said in a statement.

Trading volumes in European dark pools fell last year following the collapse of US investment bank Lehman Brothers and the onset of the financial crisis. The combined trading value of Europe’s three main dark MTFs – Liquidnet, NYFIX Euro Millennium and ITG POSIT – slumped to €1.16 billion in November 2008 from €2.13 billion in September 2008, according to figures from market data vendor Thomson Reuters’ European Market Share Reporter service. However, volumes have since improved, and combined trading at the three venues hit €2.67 billion – a new record.

Liquidnet is expecting buy-side use of dark trading to grow further in 2009 and believes it will benefit from the trend. “Europe’s buy-side community continues to embrace efficient trading systems, and specifically Liquidnet’s unique model,” added Barker.

Deutsche Börse expects Xetra MidPoint to become more attractive to users following improvements contained in version 10.0 of the exchange’s Xetra trading platform, due to be launched on 8 June.

The upgrade will abolish Xetra MidPoint’s minimum order size of €25,000 for constituents of the DAX index and €10,000 for other stocks, allowing members to trade orders of any size on the book. Deutsche Börse said this would allow small algorithmic orders to be traded on Xetra MidPoint. The enhancements will also allow participants to specify a minimum acceptable quantity for each order, which the exchange says will make MidPoint attractive for large orders.

Xetra MidPoint is one of several European dark trading facilities offered or planned by exchanges. NYSE Euronext launched SmartPool, a non-displayed block trading facility, on 2 February this year. The London Stock Exchange is planning to introduce large-in-scale dark order types, and is launching Baikal, a non-displayed MTF, later this year.