US "dark pool" trades up by 50%in 3 years Trading of US equities on off-exchange "dark pools" has grown by nearly a half in three years to account for nearly a third of total market volume, according to a new survey published on Monday. A study by the London-based CFA Institute estimated that around 18 per cent of the consolidated volume of trades were executed by so-called "internalisation" - in which broker-dealers internally execute clients" order flow against their own accounts. The research also found that virtually all retail orders were executed via internalisation and called for greater public policy focus on internalisation. The results underscore the sometimes controversial venues, which allow investors to trade large blocks of shares anonymously, with prices posted publicly only after trades are done. They have grown popular among buyside institutions such as asset managers as they minimise the risk of the market moving against them when executing a large order. Their popularity has grown as electronic trading has caused the average size of orders on exchanges to fall. However, many investors are also wary of the anonymity of a dark pool and the identity of their trade counterparty. "The results suggest that dark trading does not harm market quality at its current levels but the gains are not indefinite," said Rhodri Preece, director of capital markets policy at the CFA and author of the report. If the majority of order flow is filled away from pre-trade transparent markets, investors could withdraw quotes because of the reduced likelihood of those orders being filled. It would be prudent for authorities to monitor these developments closely," he added. Using data from Nasdaq OMX, the study found trading of US equities had risen by 48 per cent since the start of 2009 to account for around 31 per cent of total consolidated volume as of March. Of the total volume of trades, the bloc trading venues known as dark pools accounted for between 8-13 per cent of consolidated volume. The CFA used Nasdaq OMX data as it collates the vast majority of equities trading data in the US. The CFA called on broker-dealers to provide significant price improvement for retail orders that are internalised, or route the order to public exchanges, so it could be executed against the order book. "It would thus minimise any disincentive to post displayed limit orders and would uphold market integrity," said Mr Preece. It also called on regulators to monitor growth in the proportion of dark volume trading and improve the reporting and disclosure around the operations of dark pools. Last week, an annual buyside survey by Tabb Group, the US capital markets consultancy, highlighted growing industry worries about market quality, shrinking commissions and widespread restructuring among broker-dealers.