Forefront Communications

S&P Global Market Intelligence: More Stock Trading Goes Dark in Wake of COVID-19 Downturn


Forefront Communications

Forefront Communications

Wall Street is back to dealing in the dark. In the wake of the coronavirus-triggered market meltdown, off-exchange trading hit an all-time high share of the U.S. stock market, 44.93%, on April 27, according to Rosenblatt Securities. It was the third consecutive trading day where a new record was set.

Dark pools, known formally as alternative trading systems, or ATS, are effectively private stock markets run by some of the world’s biggest banks and brokerages including UBS Group AG, Credit Suisse Group AG and JPMorgan Chase & Co.

Although April data is not yet available, equity trading volumes on dark pools ticked up in March and represented roughly 14.16% of the total market, according to Rosenblatt Securities.

Large institutional investors have been piling into dark pools to amass or dump blocks of thousands of shares at a time as well. Because they do not have to publicly display live data about trading on their venues, dark pools offer a haven for block trading as institutional investors do not have to worry about spooking the market and driving a stock price in the opposite direction.

UBS has seen a “material uptick” of block trading on its ATS, said Khandros, who is also global co-head of principal investments and strategic ventures at UBS. In March, the Swiss bank reported that 3.27% of its dark pool’s average daily volume came from block trades with at least 10,000 shares. By comparison, block volumes regularly accounted for 2.2% to 2.4% of trading on the ATS in 2019, Khandros said.

Luminex Trading & Analytics LLC, a Boston-based dark pool operator created by nine asset managers including BlackRock Inc. and Fidelity Investments, runs one of the largest dark pools for block trades.

According to data from the Financial Industry Regulatory Authority, the Luminex ATS handled 3,376 trades of at least 10,000 shares in the month of March, with the average size of each totaling 60,343 shares. A month earlier, the ATS saw 1,922 block trades with an average size of 49,843 shares. Typically, block volume falls as volatility rises, according to Luminex CEO Jonathan Clark. But portfolio managers’ mindsets shifted in the latest sell-off from one of patience to one of urgency.

“They had to move stock, they couldn’t wait,” Clark said in an interview. “In this environment, a lot of traders are of the mindset that if something shows up, they are going to ‘hit the button.'”

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