The use of dark pools is surging in Canada.
Five dark pools accounted for 3.6 percent of total volume in Canada at the end of last year, according to a survey by Rosenblatt Securities. That’s up from about 1 percent earlier in the year and compares to about 13 percent in the U.S.
Behind the growth is use by dealers and others stung by high fees on traditional exchanges and ECNs, Rosenblatt reports. In fact, a dealer consortium called Alpha Group launched its own dark pool in June. Called IntraSpread, the alternative trading system now accounts for about half of all dark pool volume.
The other half is done on MatchNow, a dark pool owned by Investment Technology Group.
Both platforms let dealers keep most of the spread, as price improvement requirements are minimal. On IntraSpread, quotes by dealers and others can only be accessed by retail brokers. ITG does not limit MatchNow to just retail flow.
There are now five dark pools in Canada. Goldman Sachs, Instinet and Liquidnet also offer dark pool trading in Canada, but their volume is negligible. Just about all of the growth in the market has come from the ITG and Alpha pools. “The growth of the two venues has driven most of the dramatic expansion of dark pool activity in Canada over the past year and a half,” Rosenblatt reports.
Their success could be undone by new regulations, however. Canadian regulators proposed rules in July that would force quoters in dark pools to give smaller orders “significant” price improvement. If this regime were to come to pass, it would cause IntraSpread and MatchNow to become “non-compliant, and likely force them to alter their spread-capture structures,” according to Rosenblatt.
