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Strategies & Market Trends : The Final Frontier - Online Remote Trading
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From: TFF8/17/2009 5:27:22 PM
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LSE trades plummet amid fears of switch to 'dark pools'

The London Stock Exchange has endured its worst July for equities trading in five years – sparking fears that major investment banks are switching to automated trading systems that bypass traditional exchanges.

By Peter Taylor
Published: 9:12PM BST 16 Aug 2009
The value of equities traded on the exchange tumbled to £91.7bn, less than half the sum traded in the same month last year, and the worst July – measured by value of trades – since 2004.
With 12.2m trades, it was also the worst month by volume since December 2007.
The declines come as regulators including the Financial Services Authority and the US Securities and Exchange Commission embark on a review of automated trading systems – known as "dark pools" – amid growing concerns that they reduce transparency and undermine the interests of retail investors.
Although exchanges can administer dark-pool trading, it mostly takes place directly between investment banks using sophisticated technology that allows the rapid trading of share parcels. It enables large blocks to be traded with prices not posted publicly until the transaction is complete.
Paul Kavanagh, a partner at stockbroker Killik & Co, said the rise in dark-pool trading, alongside alternative exchanges such as Chi-X, was a consequence of European Union rules introduced earlier in the decade to bolster competition in the exchange sector.
Dark pools have "sharply impacted on LSE volumes", Mr Kavanagh said, as investment banks had circumvented the exchange to cut costs.
"The real damage here is that the market has become a lot less transparent than it used to be. I suspect at some stage a solution will be found, but somebody has to put it all together," said Mr Kavanagh.
"We have to recognise that weaknesses have been created out of this automated system that will need to be addressed."
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