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Some investors are shifting business away from public exchanges because they feel these offer little chance to negotiate cheaper bulk buying or to sell without triggering sell-offs that can cut the price they fetch for their assets.
Thomson Reuters and Markit data suggests the volume of dark trading rose for the fifth consecutive month in September, accounting for 5.84 per cent of all European share trade, more than double the 2.8 per cent volume recorded in September 2011.
The rising popularity of off-exchange activity has sparked fresh debate over proposed caps on dark pool trading in the next revision of the European Union's (EU) Markets in Financial Instruments Directive (MiFID), under discussion in Brussels.
Policymakers want to cap daily dark trading at 4 per cent of total trading in each stock in the EU, and total aggregated dark pool transactions at 8 per cent of all European trade. They worry that transactions capable of destabilising markets could go undetected unless limits are introduced. They also fear users are draining liquidity from public exchanges, making it harder for other investors to value stocks accurately.
Anyone can use these pools if they have membership and fees are typically lower than trading stocks using traditional stockbrokers. The biggest users of these networks are large fund managers and banks who regularly trade large volumes of stocks.