Liquidnet, whose 740 members include the world's largest asset managers, has seen institutional investor flows return to markets, such as Europe and Asia, amid improved global economic conditions.
"Building out Liquidnet's global footprint to 42 markets has played a significant role in our success. While the bulk of investable assets are still held in North America, 2013 has marked a year in which these institutions have increasingly looked to diversify their international investment strategies," says Seth Merrin, founder and CEO of Liquidnet.
"With approximately 45,000 publicly traded companies globally, institutional investors realise they have to look outside their borders to find the best opportunities. In 2013, this has meant diversifying into European equities and exploring new opportunities in Asia Pac."
Globally, global principal traded on Liquidnet's network was up 17 per cent year-over-year totalling USD470bn. In addition, Liquidnet's global average negotiated execution size jumped 15 per cent to USD1.4m, which is more than 100 times greater than the major exchanges.
In Europe, Liquidnet saw a 59 per cent increase in average daily principal traded and a 44 per cent increase in average daily liquidity year-over-year. Liquidnet's average execution size in Europe continues to increase, nearing USD1.3m, up 28 per cent from 2012. Liquidnet maintained a nearly 70 per cent market share in dark block trading (over USD1m trades executed on MTFs), as institutions became increasingly more confident in trading European equities in large block size.
Liquidnet continued to increase its European footprint and saw a 146 per cent increase in trading from Continental European institutions in 2013 from the previous year. The strong results seen in Europe was also driven by large investor flows from US institutions, which was up 48 per cent in Q4 2013 compared to Q4 2012. Liquidnet also saw a significant increase in institutions trading large cap stocks, up 109 per cent in Q4 2013 compared to Q4 2012.
Additional growth in the region was driven by the expansion of Liquidnet's commission management services to Members and customers in Europe. The service is designed to reduce the conflicts that stem from managing best execution and the need to use commissions to pay research and execution bills. Increased regulatory scrutiny over how and where commissions are being spent also added to the demand for the commission aggregation and analysis services.
In Asia Pacific, Liquidnet recorded strong growth throughout 2013 with average daily liquidity up 30 per cent year- over-year to more than USD10.8bn. Principal traded jumped more than 14 per cent across the region with records in South-East Asia, Japan and Hong Kong as large institutions increasingly used Liquidnet to secure large blocks of equities. As an example, the average trade size jumped 17 per cent in Asia Pacific year over year to USD1.24m, which is more than 100 times larger than the average trade size found on the Hong Kong Stock Exchange.
In April, Liquidnet announced that Thailand became the 42nd market available through its network, further boosting the number of investment opportunities available to the members.
In the US, Liquidnet continued to dominate in block trading. When a Liquidnet Member traded a US stock in 2013, 76 per cent of the time it was either the first or second largest print of the day. In addition, the firm crossed its largest ever trade in a US-listed stock in October, with two Liquidnet members exchanging 2.9 million shares worth USD150m. In addition, total principal traded for US equities was up 11 per cent year-over-year.
"This ability to quickly respond to changes by directing flow to where opportunities arise is increasingly central to institutional performance. This trend will continue in 2014 and we expect to see more cross-border equity flows across our 42 markets as a result," Merrin says. "As a global trading network, we will continue to remain focused on removing barriers and make trading more efficient around the world, helping our members achieve even greater performance."