US traders continue shift away from block trading venues

Block-focused non-displayed trading venues continued to lose volume in the US during June to algo-friendly dark pools.
By None

Block-focused non-displayed trading venues continued to lose volume in the US during June to algo-friendly dark pools.

The findings come as part of ”Let there be light', a monthly US dark pool tracker from agency boutique brokerage Rosenblatt Securities.

During June, Rosenblatt's report found that the buy-side-only block crossing service operated by Liquidnet suffered a month-on-month decline of 26.54% in average daily volume traded to 19.1 million shares from 26 million shares in May. Fellow block trading venue Pipeline Trading declined by 31.46% to 7.3 million shares per day, from 10.7 million shares according to Rosenblatt estimates.

Pipeline has an average execution size of 54,648 shares, while Liquidnet has an average execution size of 49,996 shares, way ahead of the next largest ITG POSIT, which had an average execution size of 6,000 shares in June. The other 14 dark pools analysed by Rosenblatt have average trade sizes between 240 and 461 shares.

The drops come against a background of a 22.13% monthly reduction in dark trading volumes across all of the trading venues tracked by Rosenblatt during June, but a year-on-year increase of 28.11%. Liquidnet volumes dropped by 22.36% year-on-year, while Pipeline fell by 15.12%. By comparison, dark pools that encourage smaller order sizes grew on a year-on-year basis, including Barclays' LX (+170.41%), BIDS Trading (+108%), Instinet's CBX (+113.33%) and Knight Link (+57.43%).

According to Justin Schack, director at Rosenblatt and author of the report, the decline is indicative of the long-term trend towards smaller trade sizes and venues that are more conducive to high-frequency trading styles.

“A new generation of traders has grown comfortable with splitting up parent orders into tiny pieces and trading them over time using algorithms, rather than seeking block executions,” Schack told “Using algos to trade in small sizes in some ways is seen as less risky than committing to a big block and having the market move against you.”

Furthermore, Schack adds that block trading venues now have no exposure to the main source of liquidity in the US.

“Large institutions were the driving force of overall volumes 10 or 15 years ago, but now high-frequency traders are the dominant force, and the block venues really have no exposure to that flow,” he said.

High-frequency trading is estimated to account for around two-thirds of total US equity liquidity according to various industry estimates.

But although volumes in block trading venues are declining, both Pipeline and Liquidnet have developed services to complement their offerings. Liquidnet, for example, offers H20 as an opt-in service which augments its core crossing network with flow from non-buy-side sources, while Pipeline offers pre-trade analysis tools and an algorithmic switching engine that uses predictive technology to select from a range of vendor-provided execution algorithms to minimise market impact while trading.