Liquidnet saw record third quarter performance in Europe as institutional investors increasingly searched for size and improved execution quality, ahead of the Markets in Financial Instruments Directive (MiFID II) rules taking effect in January 2017.
These rules are expected to bring about tougher best execution requirements and caps on trading within dark pools.
In Q3 2015, average execution size was USD1.5 million. Total principal traded climbed to USD34.7 billion, up 18.98 per cent year-over-year (YoY), with continued strong growth coming from Continental European members up 41 per cent to USD2.8 billion total principal traded YoY.
“More and more institutional investors are turning to each other to execute large trades with minimum market impact and maximum anonymity,” says Mark Pumfrey (pictured), Head of EMEA at Liquidnet Europe. “Following on from a record third quarter, we are seeing this momentum continuing into Q4 with four record breaking USD1 billion plus trading days so far.”
As regulators and policy makers drive forward more rigorous best execution rules, the focus on measuring and proving best execution is a key focus for asset managers. LiquidMetrix, an independent TCA specialist’s monthly dark pool guide compare market impact savings on European dark pools. Liquidnet continually delivers on average 90 basis points of improvement – versus volume adjusted prices in lit markets at the time of trade – compared to the nearest venue of 58 basis points.
Liquidnet’s strong growth in Q3 is also due to the continued success of Liquidnet 5, Liquidnet’s front-end trading application that has created a more actionable pool of liquidity for institutional investors. In addition, growth continues in Liquidnet’s algorithmic offering including Liquidnet Dark, which is up 86 per cent in total principal traded YoY. The algorithm rests orders conditionally in Liquidnet whilst intelligently sourcing liquidity from external venues. This process maximises trading with a natural block, while simultaneously taking advantage of liquidity opportunities in other dark pools.
Pumfrey adds: “Liquidnet focuses on continuous innovation with a strong pipeline of new products to help institutional investors find quality liquidity and achieve best execution. As an independent, aligned interest model which only trades on behalf of its members, we believe Liquidnet is well placed in a post MiFID II world to help the buy-side deliver best execution.”