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Dark Pools Grab Market Share —Rosenblatt Report

A sharp decline in volatility in January set the stage for dark pools to gain market share in January, especially those focusing on institutions and block trading, according to Rosenblatt Securities' report.

Dark pools garnered a record-high share of US equity trading volume in January, a month in which volatility dropped sharply, according to Rosenblatt Securities’s Monthly Dark Liquidity Tracker.

Overall, aggregate volume executed in dark pools was 921 million shares per day in January, growing 15.68 percent month over month, according to the Rosenblatt report. However, consolidated average daily volume grew 7.60 percent to 6.43 billion, over the same period.

The 19 non-displayed venues tracked by the Rosenblatt executed 14.33 percent of consolidated US equity volume in January, an increase over December’s adjusted 13.33 percent.

Barclays LX moved past Goldman Sachs Sigma X as the second largest dark pool, according to the report. Barclays LX’s average daily volume was 90.8 million shares for January, a jump of 13.64 percent over December, which equates to about 1.41% of the overall market. However, Goldman's Sigma X had 90..3 million shares.

Barclays LX climbed nine places in the dark pool rankings over the past four years, the investment bank said in a press release.

Barclays said its dark pool attracted significant volume over the past year, citing enhancements it made to the firm’s technology, algorithmic trading and routing strategies. The team has also deepened its relationships with clients and liquidity providers.

“Flow begets flow,” commented Bill Bell, Head of Equities Electronic and Program Trading Distribution at Barclays in the firm’s release. “We have consistently grown our market share. The marketplace and market structure may be in constant flux, but finding liquidity continues to be a core need for clients. We remain committed to evolving how we access and aggregate liquidity for our clients.” In 2009, LX was in tenth place. It jumped to become the seventh largest dark pool at the beginning of 2010. It held the fifth position for most of 2011. In January 2012, Barclays moved up into fourth position, and then third place in December.

However, Rosenblatt’s report pointed out that Barclays LX has a slim lead over Goldman Sigma X.

Meanwhile, Credit Suisse CrossFinder is still the biggest dark pool with average daily volume of 120.9 shares in January, up from 102.4 million in December, representing 1.88 percent of consolidated volume. Credit Suisse Crossfinder passed Sigma for the top spot in 2009 and has retained that position ever since.

Dark pool benefited from a sharp decline in volatility during January, the report said, noting that the value of the CBOE’s Volatility Index (VIX) in 13.51, a steep 21.97 percent drop from December. “The portion of US 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,” the report stated.

As volatility plummeted, the biggest gains in market share occurred in dark pools that focus on institutions and block trading, the report noted. The biggest gainers were Liquidnet’s Negotiated pool (54.75 percent), BIDS Trading (34.91 percent) and Instinet’s VWAP cross (41.45 percent).

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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