New Buy-Side Research Shows that the use of Dark Pools is Inextricably Linked to Other Factors in Market Structure

London - 20 April 2012

New research from TradeTech Pulse suggests that the lack of data consolidation and established data standards across Europe is increasingly pushing asset managers to direct flow into dark pools, as they are finding it so hard to navigate across the fragmented nature of the markets in Europe. The research also reveals that between 30-40% of asset managers’ trading flow is now being executed in an OTC environment, however not all asset managers trade in dark pools. And contrary to the popular assumption, avoiding high frequency traders is not the major reason that an asset manager will direct flow into a dark pool. The majority of the respondents believe they will be trading high volumes in a greater variety of dark pools in a few years’ time.

“Trading in the dark, a buy side perspective” sets out to a provide a more accurate picture of how large, medium and small asset managers across the continent have traded over the period between 2007 and 2011, how and why they use OTC and dark pool alternatives and, in their view, the critical issues that they need addressing to improve their trading environment. The results are interesting and sometimes surprising and will be used by the asset management trading community for benchmarking.

Asset managers were asked to compare quality of information, provision of liquidity and satisfaction of service across a range of different types of off-exchange execution venues. The research found that asset managers have significantly increased the amount of control they have over their trading in the last 5 years, increasingly deciding where and when to execute orders rather than leaving this decision to their brokers.

The Research Report concludes that if regulators are concerned about dark pools, they must first address the need to more easily aggregate and improve the quality of data. Secondly they must continue to promote a more level playing field across market infrastructure that will lower costs for all participants, accelerate consolidation and reduce the current incentives for market participants to excessively create and use large numbers of dark pools and crossing networks.

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