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Economist and Hedge Fund Manager Shayne Heffernan of www.livetradingnews.com takes a look at Dark Pool Trading.

The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is represented by block trades facilitated away from the central exchanges.

With the volume of dark liquidity growing by nearly 50% over the past 3 yrs to account for nearly 33% of consolidated volume, there is a clear shift in the market structure away from trading on transparent exchanges and towards Dark, or underplayed venues.

“Our analysis suggests that market quality is best served by maintaining strong competition between trading on lit and dark venues, and avoiding a predominance of dark trading, so policy measures should be designed to encourage such an outcome,” said Rhodri Preece, director of capital markets policy at CFA Institute.

A new report by the CFA Institute examines internalization-internal execution of client orders within a broker/dealer system or against the broker’s own account- as well as dark pools.

The report recommends that internalization of retail orders should be required to offer meaningful price improvement, and provide some protection to investors posting displayed orders in limit order books.

Heffernan Capital Management is offering Dark Pool trading on the worlds major Equities, Indices, Commodities, Interest Rates and Foreign Exchange.

Heffernan Capital Management online trading platforms provide all of the needed tools. Online and mobile trading services set HCM apart from the market. Heffernan Capital Management

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Operators of alternative trading systems are developing new techniques for expanding the pool of liquidity available to their institutional customers by allowing them to interact safely with dealer order flow.

Institutional asset managers have historically shied away from posting block-sized orders on regulated exchanges out of fear that electronic market makers will pick off their order flow and thereby cause their orders to be executed at an inferior price.

Trading technology has adapted to these challenges by offering smart order routers, which for some time now have enhanced a firm’s ability to determine the best place to get orders filled based on price and shares available.

Citigroup’s NYSE:C recently-launched Dark Pool, Citi Cross, eliminates this risk by virtue of a new matching engine which allows a wide range of clients the opportunity to interact with Citi’s various sources of liquidity, with the idea of bringing together historically eschewed flows of liquidity, thus reducing fragmentation.

Bloomberg’s BPool offers a centralized, active and diverse marketplace for traders to efficiently trade large blocks while giving traders the ability to monitor and control their orders from order-entry to execution.

By enabling institutional traders to interact with block-size liquidity on Bloomberg’s equity trading platforms and match orders at Bids Trading, a US block trading venue, BPool is intended to help the buy side source equity liquidity in an increasingly fragmented market structure.

Liquidnet Canada is opening up its trading venue to registered broker-dealers, in an effort to offer more liquidity for its core institutional customers.

Dark trading is now roughly 7% of total daily market volume in Canada, up from 2.2% in Y 2011.

One of the reasons why Dark Pool volumes in Canada are so low is the existence of broker preferencing, an internalization practice that allows incoming orders to a trading venue to match with other orders from the same dealer ahead of similarly priced orders from other dealers, without concern for time priority according to a report from Markets Media.