08.11.2011
By Terry Flanagan

Volume Surges at Dark Pool

Exchange operators and trading systems are seeing surges in trading activity amid a sharp spike in volatility. In part because of its institutional client base, alternative trading system Liquidnet has been able to outpace the rest of the markets.

Focusing on institutional clients, who tend to have much more consistent trading patterns and order flow, has allowed Liquidnet to have a more steady volume of trading as opposed to the overall markets. It has seen an increase in trading volume year-to-date of about 5 percent, while the markets as a whole have been down more than 20 percent.

Volume at Liquidnet for the first week of August was the highest since November 2008, when the global economic recession was in its peak. During the week, 434 million shares changed hands in the U.S. Trading volumes in Europe and Asia have also surged in that span. Liquidnet has seen average daily volume in the U.S. over the last 10 days increase 50 percent over the year-to-date average, outpacing the overall market’s growth of 30 percent during that same period of time.

But like the previous surges in volatility seen earlier in the year, the most recent case will likely be temporary as well. The signs have already pointed to a return to normalcy as volumes are on the decline. “I can’t imagine volatility levels staying where they are,” said Alfred Eskandar, head of U.S. equities at Liquidnet. “We saw them come down a bit (over the past few days). They’re not at sustainable levels, and neither is volume.” During the recent upswing in volatility, the markets saw daily equities volume as high as 18 billion shares. Eskandar expects that number to eventually settle back down to eight or nine billion, which is more in line with the figures seen earlier in the year.

The volume uptick seen in the first week of August at Liquidnet comes after a strong July, in which it saw a 36 percent increase in average daily trading volume year-over-year, to 58.8 million from 43.1 million. Average execution size also increased 12 percent, from 47,000 to 52,600. International principal traded was also up 16 percent to $7.6 billion, from $6.6 billion.

“We’ve seen a tremendous globalization effect take hold,” said Eskandar. “Customers in the U.S. have been looking for investment opportunities abroad. With offices all over the world, we’re able to aggregate buyers and sellers.”

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