US dark volumes reached a record high in April as equity market volatility fell, with pools that focus on institutional investors among those gaining, according to agency brokerage Rosenblatt Securities' monthly report.
In total, the 18 non-displayed venues tracked in the study executed 13.19% of consolidated US equity volume in April, up from 12.26% in March. The previous high, 13.02%, was reported in February. In April, aggregate dark pool volume fell 3.43% month-to-month to 924.9 million shares per day, compared with a 10.25% slide in consolidated volume.
Buy-side crossing network Liquidnet's negotiated pool achieved a 29.23% rise in average daily volume in April, while trading in agency broker and trading technology provider ConvergEx's VortEx rose 18.72%. Morgan Stanley's MS Pool gained 11.54% on a month-to-month basis. However market maker venues GETCO Execution Services and Knight Link saw volumes decline from March 12.59% and 12.22% respectively.
Overall, bulge-bracket venues gained 120 basis points (bps) of market share in April. Independents and agency brokers gained 97bps, while market makers lost 173bps and consortia lost 44bps.
However the report concluded that dark market share has likely declined since April, citing the rise of the VIX by 5% in May and the collapse of volume in Citigroup, which it calls a “favourite dark pool stock”, due to the firm's 6 May reverse split.
The Rosenblatt figures suggest an inverse correlation between dark pool share and volatility, with the average daily closing value of the Chicago Board Options Exchange Volatility Index, for example, reading 16.24 in April, down 21.63% from March.
Although the US's dark pools operate under the threat of regulatory restrictions – notably the ”trade-at' rule, which would require operators of dark pools to either offer significant price improvement or route orders to lit venues – Rosenblatt suggests that the likelihood of the rule being passed remains “well below 50%”.
But the firm also suggests that proposal made by the Securities and Exchanges Commission (SEC) in October 2009, regarding quoting rules and post-trade transparency for dark pools, may gain renewed urgency, as regulators in other jurisdictions push forward their own measures on dark trading.
Specifically, the post-trade transparency portion of the SEC proposal could be altered, says the firm, so that it requires end-of-day attribution of individual dark pool trades on the consolidated tape, rather than in real time as is currently the case.