Block Trading Grows

Terry Flanagan

Ongoing macroeconomic uncertainty has been a boon for block trading.

“The year has started off on a positive note with institutional investors having more conviction and putting money to work – those two factors led to greater competition to find liquidity in size and trade large blocks of stock,” said Brian Williamson, senior U.S. equities analyst at Liquidnet. “Other factors playing into the bullish tonality of the market included the decline in overall market volatility and positive U.S. economic data and earnings reports. Globally, we have also seen the fear factor in the market dramatically reduce as Europe continues to handle its financial issues and concerns about Europe’s future have abated.”

Liquidnet’s U.S. average daily volume was up 80% percent month-over-month, trading 1.2 billion shares. This growth outpaced the volume growth in the overall market which increased 9% from December to January. In EMEA, total principal traded in Liquidnet and average daily principal were both up more than 111% month-over-month. Liquidnet’s average negotiated execution size in EMEA was $956,494 in January, a 20% increase month-over-month.

Canada had similar growth as well, up 118% in total volume month-over-month.  Asia-Pac saw an increase of 9% in total principal traded month-over-month, so not as extreme as the other regions.

On average in January, when Liquidnet members traded a U.S. stock, they represented 37% of the day’s market block volume in that stock. In addition, 60% of the time Liquidnet members traded a U.S. stock in January they executed either the 1st or 2nd largest print of the day in that stock. For small cap stocks, members executed the 1st or 2nd largest prints of the day 80% of the time.

Liquidnet posted record growth in Canada during 2011, with trading volume increasing 60% year-over-year, with its client base consisting entirely of institutions. This is in contrast to the Canadian equities market as a whole, which saw a 6% increase. The TSX declined 1% at the same time and the Venture exchange declined 4%.

Liquidnet and other dark liquidity pools are marketplaces where institutions and asset managers can execute large block trades anonymously and without market impact.

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