CA Cheuvreux publishes a survey about Dark Pool usage and regulation in Europe

Paris, London - 10 December 2012

Crédit Agricole Cheuvreux announces the publication of Dark Pools: Not So Dark" an in-depth survey of the Buy-side about their views on the best use of Dark liquidity in Europe and the future of market microstructure. The survey was composed of a series of 50 questions about Algorithms, Electronic Trading, Fragmentation and Dark Pools.

Key findings:

- Almost 90% of Buy-side respondents use algorithms and more than 80% use analytics, using three different brokers on average for electronic trading services.

- Dark Pools are widely used by buy-sides, in a very similar manner to crossing with natural liquidity. Around 13% of trades are done via Dark Pools compared to 20% natural crosses, far larger than the official market share of Dark Pools (2%).

- Dark Pools are used to seek liquidity, with more than 50% of users being very careful about adverse selection, thus using minimum quantities. Buy-sides prefer less "public" Dark Pools as perceived levels of anonymity and captured liquidity are higher, while market impact is lower.

- Buy-sides do not appreciate the current state of fragmentation created by competition among MTFs: they believe that rebate pricing models create conflicts of interest (75%), are in favour of regulated tick sizes (75%), and do not think that MiFID 2 will improve the quality of the markets (72%). Their ideal number of European equity trading platforms is "less than five" (68%), which is below the number of primary markets in Europe.

"'The major unintended consequence of MiFID was wide-spread fragmentation and the explosion of high-frequency trading. What is now certain is that 'client business' represents a much smaller percentage of market turnover than it did five years ago with, in some markets less than 20% of Primary Order Book volume in main index names being Institutional Investor flow." says Ian Peacock, Global Head of Execution Services at CA Cheuvreux. "With the MiFID II Review currently underway, dark pools are one of the major topics under scrutiny. Institutions are concerned about the complexity of this new trading landscape and do not feel the proposed regulatory changes will address or help to solve their concerns."

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