The average daily liquidity from Liquidnet’s continental European members has increased 204% year-on-year after the dark pool operator hired sales staff for France and Germany 18 months ago.

Mark Pumfrey, chief executive of Liquidnet Europe, told Markets Media: “At the end of 2012 55% of EMEA daily liquidity was in UK stocks but this has decreased to 45% following our big drive into continental Europe.”

The average execution size of $1.3m in the third quarter in Europe was also up 36% year-on-year according to Liquidnet.

Other reasons for the increase in continental European liquidity are the fall in volatility and a big reversal in flows into European equities from US managers from the very low levels of last year. “On average US managers are still underweight in Europe compared to 2007 and there is a lot of potential for growth if European regulators don’t unhinge this through their current revisions to MiFID,” said Pumfrey. “Flows could reverse very quickly if they don’t focus on improving market structure and thereby, returns for end investors.”

In one of the possible changes to the Markets in Financial Instruments Directive, the European Council has voted to put caps on the amount of dark pool trading in individual stocks.

Per Loven, head of EMEA corporate strategy and product, Liquidnet Europe, told Markets Media: “Not all dark pools are created equal. We are the only regulated MTF, which has built our business model on the ‘large in size’ waiver. The trades we execute through our network are so large that they would carry substantial market impact if traded on the lit market. This constitutes for around 70 – 80% of our business today.”

Loven said Canada and Australia introduced new rules in May this year and results show turnover on both the lit book and institutional block trading has since increased while non-block dark pool internalisation volume has decreased.

“We don’t think it makes sense to impose volume caps and limit dark pool trading to 8%. There is no logic to this number,” added Loven. “We would rather make sure that every trade in a dark pool adds value over and above a lit environment in terms of reducing market impact and/or offering price improvement.”

In addition to continuing to grow block liquidity in continental Europe, Liquidnet believes there are opportunities for increased use its commission management system as regulators focus on how asset managers pay for research.

Loven said: “Our commission management suite has been built for the buy side helping institutions manage where and how their commissions are being used as required by the FCA.”

Last month the Financial Conduct Authority, the UK regulator, issued a consultation paper on changing rules that allow asset managers to pay for certain types of research using dealing commissions are taken from their customers’ funds.Martin Wheatley, chief executive of the FCA said in a speech in October that the current system is not transparent and could lead to conflicts of interest.

“Continental Europe has much less unbundling than the UK and in some countries managers have a problem adding an execution only broker,” added Pumfrey. “The opportunity for members taking our Commission Management suite of products in Sweden has increased since they introduced a better framework for unbundling in November last year and we see a good opportunity as unbundling becomes more prevalent on the continent.”

Pumfrey said two EMEA members have already signed up to use the commission management system, and Liquidnet has an active pipeline going into the New Year.