Dark-Pool Market-Share Battle Intensifies; GETCO Gains
Last update: 5/15/2009 3:52:36 PM
By Rob Curran
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Overall growth of hidden stock trades has leveled off but there's still intense competition for market share among leading dark pools, with new players such as GETCO Execution Services coming to the fore, according to new data from TABB Group.
Dark pools are electronic venues where stock orders are matched anonymously; trades are published on the tape only after completion. Money managers prefer to execute large orders "in the dark" because it lessens the odds of tipping the market.
In April, about 2.51 billion shares a day traded without publishing bids or offers, according to a TABB Group report acquired by Dow Jones Newswires. About one-third of the total represented orders matched in dark pools, while the remainder stemmed from dark-pool orders received by brokers and matched against their proprietary orders.
For 2007 and much of 2008, the proportion of hidden stock trades grew rapidly and most exchanges saw market share shrink, but recently both have reached a status quo, said Cheyenne Morgan, an analyst with TABB Group. In April, hidden stock trades represented roughly 22% of the 11.22 billion average U.S. daily volume.
The competition has heated up within the dark-pool arena itself, however.
GETCO Execution Services, the dark pool run by Chicago market maker Global Electronic Trading Co., started in March 2008 and was the fourth largest pool last month.
Roughly 162 million external orders crossed a day in the largest pool, Goldman Sachs Group Inc.'s (GS) Sigma X. The next three largest, Credit Suisse Group's CrossFinder; Knight Capital Group Inc.'s (NITE) Knight Link and GETCO were all between 140 million and 150 million a day.
Both Knight Capital and GETCO offer an "Immediate Or Cancel" feature, whereby orders never "rest" on their books. That feature attracts money managers who worry that their orders may not be entirely invisible, even in a dark pool, if they are left open too long, Morgan said. That's helped GETCO move rapidly up the charts and challenge for the number-one spot in recent months.
GETCO is also a market maker that operates using similar strategies to "high-frequency" hedge funds. These funds, which use computer programs to construct speed-of-light electronic-trading strategies, are thought to have emerged from the recent stock-market crash on one end or the other of more than half of overall U.S. daily volume.
One pool whose volume had shrunk rapidly in recent months managed to stop the drainage in April partly by appealing to high-frequency funds. Nyfix Inc.'s (NYFX) Millennium pool held volume more or less flat at 17.3 million a day while the vast majority of pools and exchanges saw volume shrink. Nyfix recently increased the speed of execution in its pool, an adjustment that appealed to "high-frequency" players.
"The speed of the market itself is increasing, the order-management systems, the execution-management systems that traders have on their desktops," said Morgan. "If that's faster, the pools can't be slow."
-By Rob Curran, Dow Jones Newswires; 201-938-5176; robert.curran@dowjones.com
(END) Dow Jones Newswires
May 15, 2009 15:52 ET (19:52 GMT) |
