Huge spikes in volatility in the first two weeks of August led to a decline in the proportion of European trading executed in the dark, according to market data from multilateral trading facility (MTF) BATS Europe.
In the week ended 12 August, trading turnover on Europe's dark MTFs – including those operated by Chi-X Europe, Turquoise and brokers UBS, Goldman Sachs and Nomura – averaged €1.6 billion per day, representing 2.29% of European stock trading. Total dark and lit trading in Europe reached €347.8 billion, or an average of €69.5 billion per day.
In the last week of July, before volumes and volatility rocketed in response to concerns over European and US debt levels, when dark MTFs averaged €1.18 billion per day, but accounted for an average of 3.1% overall market share. Overall European trading volumes during this period reached a total of €185 billion.
The data suggests that in times of high price volatility, traders are unwilling to rest orders in dark pools for fear of receiving a price away from prevailing market levels. Volatility reached yearly highs in Europe during the first two weeks of this month, with the VSTOXX, an index that measures price volatility in EURO STOXX 50, reaching 49.85 on 9 August – around double its average value throughout this year.
The declines were felt more or less evenly across broker-operated and MTF-owned dark pools. However, one venue that has reported healthy volumes so far this August is Liquidnet, the buy-side only dark MTF that allows participants to negotiate the price at which they want to execute. According to its own figures, Liquidnet – which typically trades in significantly larger size than most other dark pools – traded Â£357 million in the first two weeks of August, 40% higher than in the whole of July and 92% higher than August 2010. There was also an average daily liquidity pool of Â£12.5 billion in the first two weeks of August, compared to an average Â£8.59 billion in the year to the beginning of August.
Agency broker ITG’s POSIT dark pool, which also trades in larger size than most dark MTFs, also reported a spike in volumes in the first two weeks of August, trading 144 million shares, a 74% increase over the second quarter of 2011. ITG also said its peak market data message traffic surged to three times normal levels.
Liquidnet also reported rising volumes in Asia-Pacific, with available liquidity averaging US$11 billion per day between 1-11 August inclusive, compared to a year-to-date average of US$9 billion. Liquidnet also reported that daily volumes in Australia had tripled compared to a 50% increase in trading on the Australian Securities Exchange.