Market Tumult Lifts Volume at Liquidnet and Pipeline

Fears of a U.S. recession that sparked a global sell-off in European and Asian stocks over the past two days, led to a rocky day in U.S. stock trading and an aggressive rate cut by the Federal Reserve, But the jittery behavior of institutional investors and hedge funds could be good for alternative trading systems (ATSs) judging from the recent highs in dark pools. Two of the dark pools, Liquidnet and Pipeline, announced record high volumes last week.Last Wednesday, Jan. 16, Liquidnet broke a new single day record in trading volume around 2:30 p.m., reaching 144.8 million shares in both its negotiated and automated market (H20), according to a Liquidnet spokesman. The new high surpassed its previous volume high of 125.3 million shares on Nov. 9, 2007 by about 16 percent. Liquidnet was able to maintain a large average execution size of 63,000 shares, notes the spokesman. Last week, Liquidnet sustained average daily volume of 100 million shares for all five days last week, according to a company spokesman.

Today, Liquidnet closed the day with 112.5 million shares traded. "There is a flight to quality liquidity in fast moving markets from which we benefit as the largest independent natural liquidity pool in the world," noted the spokesman last week.

Liquidnet's main competitors are NYFIX Millennium, Pipeline Trading Systems and Investment Technology Group. Among the four leading dark pools, NYFIX Millennium is the only ATS that posts daily volume statistics for its dark pool on its Web site. On Jan. 16, NYFIX Millennium executed 75.4 million shares.

Last Thursday, Pipeline Trading Systems reported that over 58 million shares were executed last Thursday on the Pipeline ATS, breaking a new liquidity record. Last November, Pipeline said that the average execution size in it auto-ex block market surpassed 50,000 shares. On Tuesday, Pipeline's volume was 55.24 million shares.

The trading activity on ATSs is tracking the surge in volume in the public markets - which dwarfs the volume in ATSs. Today, the New York Stock Exchange closed the day with 3.176 billion shares traded in all NYSE-listed issues, setting its fourth volume record since July 26, 2007 when it traded 3.399 billion shares. Today, according to statistics on its Web site, Nasdaq closed the day with 3.156 billion shares traded, topping 2.734 billion shares traded on Friday, Jan. 18 as the highest day in 2008. Nasdaq's heaviest day occurred on June 22, 2007 when 3.746 billion shares were traded around the time the credit crisis erupted.The jittery behavior of institutional investors and hedge funds could be good for alternative trading systems (ATSs) judging from the recent highs in dark pools. Two of the dark pools, Liquidnet and Pipeline, announced record high volumes last week. 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