The percentage of equities trading that takes place in dark pools hit an all-time record in January, according to tracking done of 19 unlit venues by Rosenblatt Securities.
All told, average volume of trading in the dark pools tracked by Rosenblatt reached 921 million shares a day, or 14.33 percent of consolidated volume of 6.43 billion shares on all unlit and public venues. Rosenblatt does not track volume in Merrill Lynch’s Instinct X dark pool.
Behind the surge in dark pools’ share of trading was a decline in market volatility, Rosenblatt said, in a report on January activity.
“The portion of U.S. trading done in dark markets has exhibited a strong inverse correlation with the VIX since the worst of the financial crisis subsided in mid-2009,” Rosenblatt reported. “That effect was back in force last month after fading in the fourth quarter.”
The VIX is the Chicago Board Options Exchange’s Volatility Index, which measures expectations of stock market volatility over the coming 30 days.
The index has been moving steadily lower in recent months, reflecting calmer markets. The average daily closing value of the index was 13.51 in January, down sharply from December. At the height of the credit crisis, in October 2008, the index reached nearly 80.
Traders tend to trade more in dark pools during less volatile times because they can be more patient. They are more willing to wait for an execution, which can take longer in a dark pool to complete. When stocks are more volatile traders prefer quicker executions in the “lit” markets, or exchanges .
