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February 18, 2013 11:40 pm
Liquidnet, the US dark pools operator, is pushing to treble the amount of business it does with Europe’s largest fund managers as investor confidence returns to share trading.
The value of shares traded by European investors via the equities trading venue has risen 80 per cent to €2.3bn in January, according to Thomson Reuters data, and builds on the first net inflow of European equity mutual funds for the first time in 20 months in December.
The company is looking to regain market share lost in recent years in the face of fierce competition from rivals like BATS Chi-X Europe and UBS MTF, amid indications investors are putting more of their assets into equity funds.
Net inflows into all equity funds in recent months have reached their highest levels in five years, while the CBOE Vix index, Wall Street’s flagship yardstick of expected stock market turbulence, has dropped.
Its push also comes amid increasing debate over the market role of these off-exchange venues. The venues, often known as “dark pools”, have grown popular as they allow investors to trade large blocks of shares anonymously, with prices posted publicly only after trades are done.
By transacting this way, it allows asset managers to minimise the risk of the market moving against them when executing a large order or of seeing their order sliced up by high-frequency traders.
The London-based CFA Institute last November estimated trading of European equities in block-trading venues, whether independent or bank-owned, had more than doubled in just over two years to around 9 per cent.
However, authorities in the US, Europe and Australia are considering tighter regulation of such alternative trading venues amid fears that they could further fragment trading and dent the integrity of public markets.
Amid the fragmentation, Liquidnet has dramatically lost market share in the last four years to BATS Chi-X Europe, Turquoise, UBS MTF and ITG’s Posit platform. According to data compiled by Fidessa, a trading technology group, its market share has dropped from 37 per cent to 8 per cent in January 2009.
The group is targeting the largest fund managers in Germany, France, Holland, Switzerland and Scandinavia.
Mark Pumfrey, head of the group’s European, Middle Eastern and African business, said there were some missing names from its UK and European membership. “Some of these are large, significant alpha-focused asset managers,” he said. “We should be able to treble our business on the continent in two years. The portion of our trading originating from firms in continental Europe last year was 7-8 per cent. This year it has risen to around 12 per cent and our aim is to reach 20 per cent.”
The group is also looking to benefit from a greater regulatory push towards “unbundling” of research from the costs of trading. Traditionally, payment for the research sent to institutions was priced into the commission they paid on their trades, in spite of a decade-long drive to end the practice.
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