Market share for dark pools trading US equities was higher in 2013 than any prior year, but a slowing of growth could lead to a contraction, research compiled by broker Rosenblatt Securities has found.
In 2013, US dark pools executed around 14.54% of consolidated US equity market volume, a mild uptick from 2012’s figure of 14.26%. But average daily volumes have tapered, according to Rosenblatt’s analysis of 2013 off-exchange trading.
In 2013, dark pool average daily volume declined 2.27% to 899.1 billion shares, compared to 2012.
Off-exchange trading – which in September reached an all-time high of nearly 40% of US equities – although this includes internalisation of retail orders by leading US market makers.
Despite the growth of off-exchange trading and dark pool activity, the Rosenblatt report states dark pool market share could decline this year – an event that has never before occurred.
“We believe there’s a good chance that 2014 will be the first year on record in which dark pool market share declines year-on-year,” the report read. “As the US dark pool industry continues to mature, the steadily slowing growth of our universe’s market share in recent years could turn to an outright contraction.”
The report also welcomed greater dark pool transparency through a Financial Industry Regulatory Authority plan requiring alternative trading systems to report weekly volume figures on a delayed basis.
Across the Atlantic
In Europe, average daily value traded in the 19 dark pools that comprise Rosenblatt’s research coverage increased by 30.6% to €3.5 billion for 2013. This sample executed 5.6% of pan-European equities for the year, up from 4.3% in 2012 and 2.1% in 2011.
This growth, however, may be tempered in future by plans to limit off-exchange trading within the MiFID II regulatory framework signed of by politicians in January and subject to a vote in the European Parliament before elections this spring.
When MiFID II takes effect, participants will have to obtain meaningful price improvement around the mid-point through use of the reference price waiver to execute in a dark pool.