(Bloomberg) — Some European dark pools are setting records for volume as the operators and users of the markets await regulations aimed at increasing transparency.
Venues including Investment Technology Group Inc.s ITG POSIT, London Stock Exchange Group Plcs Turquoise Dark, Liquidnet Holdings Inc.s Liquidnet H2O and Bats Chi-X Europes two dark pools, have set records for value traded, according to Rosenblatt Securities Inc.
European Union rules that come into force in 2017 will cap much trading activity on dark venues — where buy and sell orders are not disclosed. Each market will be limited to 4 percent of trading in an individual security, while overall activity on dark pools will be restricted to 8 percent of total volume per stock.
The long-term trend is its been continuing to grow and thats because people find value through executing in a non- displayed pool, Duncan Higgins, managing director and head of electronic sales at ITG, said in a phone interview.
While trading on the 19 dark markets tracked by Rosenblatt exceeded 5 billion euros ($6.2 billion) per day for the first time, their overall share of European equity trading shrank. The private pools accounted for 6.05 percent of total volume in October, a decline of 33 basis points, or 0.33 percentage point, from September, according to Rosenblatt.
Higher volatility in Europe may have contributed to Octobers market-share decline, Rosenblatt said in the report. Venues catering primarily to institutional traders fared worse in October than those serving a broader constituency, including proprietary traders.
Big Blocks
The absence of information about orders allows investors to trade big blocks of shares on dark pools without alerting other market participants to their plans.
Several so-called broker-crossing networks — platforms that seek to match client orders — dont give their data to Rosenblatt. After adding trades from those networks and adjusting the data to remove inconsistencies, dark pools share of European equity trading climbs to as much as 11.2 percent, according to Rosenblatt.
The complexity in measuring European market share for dark pools shows how the EU will find it difficult to implement the new rules, said Steve Grob, global director of group strategy at Fidessa Group Plc.
If it wasnt so serious, it would be funny, Grob said. Youve got such a fundamental, important bit of legislation coming through, and yet its not completely clear yet how anyone proposes to measure it.
Dark trading will be exempt from the EU volume caps if investors trade sufficiently large orders.
While Europes regulators thrash out the technical details for the new rules, securities venues are positioning themselves to benefit from the changing market structure. LSE will hold a midday auction from next year in an attempt to woo large buy and sell orders. The companys pan-European Turquoise market launched a block-trading service in October.