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A Shot in the Dark

This week saw the announcement that six brokers are going to publish their dark pool volumes in a bid to improve transparency of non-lit trading in Europe. The report is published by Markit and is available here. Whilst the six firms involved should be applauded for taking these first steps towards greater transparency, the announcement still leaves a few questions unanswered. Firstly, not all the big boys are playing – notable by its absence is Goldman Sachs and it will be interesting to see what happens to the figures if and when it decides to play too.

Also, the published numbers represent only a fraction of the total non-lit volumes being reported across dark MTFs, OTC trades and Systematic Internalisers. Take the FTSE 100, for example. Last month 66% of its constituents were traded on various lit venues including, of course, the LSE, Chi-X and BATS Europe etc. The remainder was split across registered dark MTFs such as Chi-Delta and Nomura NX, bilateral OTC trading and Systematic Internalisers. Just to be absolutely clear, however, nobody is suggesting that a third of the FTSE 100 last month was traded on broker dark pools but what is certain is that it wasn’t traded on lit venues either. While the new Markit report provides some useful additional data, the only way to get a completely accurate figure is to deduct the Markit numbers from the OTC and SI reports, add back in the registered dark MTFs and then make a guess as to what is missing.

Another point that was made to me is that it is still not possible to get an accurate, independent figure for broker dark pool trading in a particular stock or index as the Markit report only provides a combined number of some broker dark pool trades in each country in Europe.

Markit can only publish the information they are given but, until the industry as a whole unites behind a common methodology and approach, it looks like we will remain somewhat in the dark about the dark.

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