2012 Fidessa group plc

2012 Fidessa group plc

What is covered in this report? Welcome to the second issue of Fidessa s European Dark Trading report which provides a comparative analysis of the major dark pools in Europe. Inside this issue: An overview of the European equity market: winners and losers at a glance Dark pool performance: Q4 2012 vs. Q1 2013 Feature: Regulatory view: Europe vs. the rest of the world Venues included: BATS Chi-X BXE, BATS Chi-X CXE, Blink MTF, Nordic@Mid (inc. Copenhagen, Helsinki, Stockholm), Instinet BlockMatch, Liquidnet, Posit, SmartPool, Turquoise, UBS MTF 1

Performance analysis Since the last report, the number of dark venues in Europe has reduced from 15 to 12. BlockCross and Nomura NX ceased operations and SIX Swiss and Liquidnet now collaborate to offer a joint block trading platform (SLS). Q1 2013 saw record volumes traded on dark pools, with average trade size increasing slightly. As expected total consideration (lit and dark) grew by 14% in the first quarter, whilst dark went up by considerably more (28%). Column1 Q4 2012 Q1 2013 Total lit and dark consideration (billion) 2,097 2,387 Total dark consideration (billion) 71 91 Average lit trade value 7,363 7,528 Average dark trade value 7,269 8,201 Number of stocks traded lit and dark 58,349 50,784 Number of stocks traded dark 12,619 11,796 Number of stocks traded with >5% dark 671 702 The total universe of stocks traded in the dark was actually down by 13%. Interestingly, though, the number of stocks where at least 5% was traded in the dark increased. The majority of these are London-listed. 2

Market landscape 2.35% of total consideration of major European indices* was traded on dark pools in Q1. The highest dark market share (5.31%) was in FTSE 250 stocks. This reinforces the view that dark trading typically takes place where there is high demand for liquidity and yet stocks are seen as harder to trade. IBEX, on the other hand, had the lowest dark market share (0.59%). This is a reflection of the current low level of fragmentation in this market although, based on the past quarter, this has already begun to increase. *Major European indices include: AEX, BEL 20, CAC 40, DAX, FTSE 100, FTSE 250, FTSE MIB, IBEX, ISEQ, OMX C20, OMX S30, OSLO OBX, PSI 20, SMI. *OTC figures are as quoted on Fidessa Fragulator 3

Venue performance UBS MTF remains in the lead position. The high positive percentage change achieved by Instinet BlockMatch may be attributed to the number of Nomura s clients that were scheduled to be migrated to Instinet after the official closure of Nomura NX. Liquidnet also performed well with a quarter-onquarter increase of 62%. It is important to note that Liquidnet, as a buy-side crossing network, has an average trade size more than 100 times greater than the other venues included in this analysis. 4

Overview of the European dark market, Q1 2013 5

Regulatory view: Europe vs. the rest of the world The definition of dark pools, and their treatment by regulators, varies across different jurisdictions. Japan Scope: Dark pool trading is not allowed. Dark pools of liquidity in Japan operate differently compared to the rest of the world. The broker crossing engines are where matching opportunities are identified but the actual execution is done on venues such as ToSTNeT-1. The majority of the flow on ToSTNeT comes from brokers' internal crosses and as members they have order visibility. Therefore, such venues are neither pure dark nor pure lit. Unlike for MTFs under MiFID, there is no regulatory framework for directly governing these broker dark pools in Japan. Weight of regulation: Prohibitive Canada IIROC (Universal market integrity rules) Scope: Applies for those recognised by IIROC as market participants and access persons. Rule summary: All orders for the purchase or sale of a security must be displayed on a marketplace. Exceptions/waiver: Dark orders: Large dark orders can execute at the national best bid or offer provided they don t trade ahead of a displayed order at the same price on the same marketplace. Small dark orders (under 50 standard trading units and $100k in value) require specific client consent to be entered as dark orders and must receive price improvement of at least one trading increment over the national best bid or offer. Europe ESMA (MiFID) Scope: Applies for Regulated Markets (RMs) and Multilateral Trading Facilities (MTFs). Does not cover broker crossing systems. Rule summary: RMs and MTFs must make PUBLIC the current bid/offer prices and the depth of trading interests UNLESS exemptions apply. Exceptions/waiver: *Reference price systems *Negotiated trade systems *Order management facilities *Large in scale transactions DARK market share: 2.35% Average trade size /value: All major indices: 1,058 7,462 FTSE 100: 1,442 6,714 Weight of regulation: Medium Australia ASIC (Market integrity rules) Scope: Market participants and market operators. Rule summary: Market participants have an obligation to submit orders to the pre-trade transparent order book and market operators to make pre-trade information about orders on their order book immediately available. Exceptions/waivers: *Block trades *Large portfolio trades *Trades with price improvement *Permitted trades during the post-trading hours *Permitted trades during the pre-trading hours period and out of hours trades Weight of regulation: Medium USA SEC (Regulation ATS) Scope: Covers Alternative Trading Systems (ATSs). Rule summary: An ATS has an obligation to display the prices and the sizes of the orders to a national securities exchange or national securities association. Exceptions/waiver: No pre-trade transparency obligation provided the stock is below 5% of the aggregate daily share volume as reported at least 3 out of the 6 preceding months. Weight of regulation: Heavy Weight of regulation: Light Numbers are calculated as at end March 2013, based on countries main indices. Dark venues refer to the non pre-trade transparent facilities of the exchanges or dark MTFs. For more information on market share and average trade size for other regions, please refer to Fidessa Fragulator. 6

We hope you have enjoyed this report. Our award-winning Fragulator and Tradalyzer tools, the full FFI database and regular blogs can be found on our Fragmentation website. Join our LinkedIn group. For more information and to submit your questions please email Tina Timneva at tina.timneva@fidessa.com. 2013 Fidessa group plc. All rights reserved. The information contained herein is provided for informational purposes only. Fidessa will use reasonable care to ensure that information is accurate at the time it is made available. The information may be changed by Fidessa at any time without notice. No representation or warranty, expressed or implied, is given on behalf of Fidessa or any of its respective directors, employees, agents, or advisers as to the accuracy or completeness of the information or opinions contained herein or its suitability for any purpose and, save in the case of fraud, all liability for direct, indirect, special, consequential or other loss or damages of whatever kind that may arise from use of this information is hereby excluded to the fullest extent permitted by law. Any decisions you make based on the information contained herein are your sole responsibility and information provided in this report should not be relied upon in connection with any investment decision. Fragulator is a registered trademark of Fidessa group plc. 2011 Fidessa group plc