Art of Darkness – 7 July 2010
First Published Sunday, 12th September 2010 07:48 am from Fidessa : Steve Grob
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
href="http://www.tradeonsmartpool.com/"
target="_blank">SmartPool is really starting to move
target="_blank">dark pool volume. Since January its
volumes have grown to the point that it is now in third place
href="http://www.chi-x.com/products/chi-delta-non-displayed-book.asp"
target="_blank">Chi-Delta and the LSE's
target="_blank">Turquoise. Lee Hodgkinson, CEO of
target="_blank">SmartPool, pointed out that whilst
European dark volumes are still relatively modest (around 5%)
they are growing at a compound rate of 17% whilst lit equities
volumes have been relatively stable over the same period. I think
this is good news for the venues concerned as matching dark
liquidity is significantly more profitable than matching lit
flow. It's also interesting to note how title="SmartPool" href="http://www.tradeonsmartpool.com/"
target="_blank">SmartPool has been able to leverage
the distribution of its parent,
href="http://www.euronext.com/landing/indexMarket-18812-EN.html"
target="_blank">NYSE Euronext, especially in terms
of the single UTP interface that allows access to all title="NYSE Euronext"
href="http://www.euronext.com/landing/indexMarket-18812-EN.html"
target="_blank">NYSE Euronext markets (including
target="_blank">SmartPool) through a single gateway.
This makes the incremental technology cost of signing up to title="SmartPool" href="http://www.tradeonsmartpool.com/"
target="_blank">SmartPool relatively low and pain
free.
The chart below also shows how well
target="_blank">Turquoise has been doing in terms of
growing its dark volumes:
href="http://fragmentation.fidessa.com/wp-content/uploads/dark-pool-vols7.png"
target="_blank">
title="Click for larger version."
src="http://fragmentation.fidessa.com/wp-content/uploads/dark-pool-vols7.png"
alt="" width="500" />
title="Turquoise" href="http://www.tradeturquoise.com/"
target="_blank">Turquoise was quick to capitalise on
market concerns in June that some high speed data feeds from
other venues potentially included price sensitive information.
Irrespective of whether this was true or not, title="Turquoise" href="http://www.tradeturquoise.com/"
target="_blank">Turquoise did a good job in seizing
the marketing high ground by confirming the veracity of its own
feed.
href="http://www.nomura.com/europe/services/equities/liquid_markets/nx.shtml"
target="_blank">Nomura NX which has set the standard
for broker-owned dark pool reporting. By registering title="Nomura NX"
href="http://www.nomura.com/europe/services/equities/liquid_markets/nx.shtml"
target="_blank">NX as an MTF, users can be
absolutely sure of the true depth of liquidity they can expect
and the type of participants they'll be sharing the
water with. Other banks look set to follow
href="http://www.nomura.com/europe/services/equities/liquid_markets/nx.shtml"
target="_blank">Nomura's lead and register
their dark pools as MTFs too but, in the meantime, we will have
to make do with the combined disclosure in the title="Markit BCS reports"
href="http://www.markit.com/en/products/data/boat/bcs-reports-listing.page"
target="_blank">BCS reports from Markit. These show
the combined volume of six bank-owned dark pools at around
€5 billion per month.
So, it looks like
the art of growing a successful dark pool is a combination of
factors: leveraging your distribution; providing real post-trade
transparency; and effective marketing.
None of
this helps the buy-side, however, which has to search harder and
harder to find tradable chunks of dark liquidity amongst a
growing number of alternatives. And, without the same level of
post-trade transparency for all non-lit venues, this situation
only looks set to continue.
