European stock exchanges have become more efficient and slashed the cost of trading over the last year as they bid to fight off growing competition from a rash of post-MiFID dark pool and MTF competitors, according to research from ITG.
ITG (Investment Technology Group) has examined over four million trades and compared the results to a similar 2009 exercise as part of its response to the EC's MiFID II consultation.
The firm claims that dark pools - much maligned by regulators - actually appear to be improving market quality, not harming it.
Transaction costs at dark pools are 13% cheaper than on primary exchanges. However, the gap is considerably smaller than in 2009 with stock exchanges becoming 20% cheaper over the last year as they respond to the threat.
Lit MTFs have been less impressive in rising to the dark pool challenge, with trading on these venues now five per cent more expensive than on primary exchanges, a reversal of the 2009 situation.
Dark pool performance in aggregate also actually declined compared to 2009 as a consequence of new market entrants which do not have the experience, infrastructure or natural liquidity of the more established dark markets, says ITG.
Concludes the report: "No empirical evidence based on dark pool data supports the idea that dark pool trading has a detrimental effect on the quality of market and executions. Each empirical study, such as this one, is only a piece of the overall puzzle, but evidence is accumulating that deserves the attention of regulators and market participants alike."
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