Dark-pool provider Liquidnet is in the process of implementing 10 new clients, bringing its total number of Australia-based clients to 58 institutional fund managers.
"We have another 10 institutions that have signed up and are in various stages of implementation," Liquidnet Australia head Sam Macqueen said yesterday.
"They will come on board over the next six to 12 months."
In total, the firm has 123 member firms around the world trading Australian equities, providing an average daily liquidity pool of $1.8 billion.
The firm saw activity in block trades, transactions of roughly $1 million in size, increase in February.
During that month, Liquidnet experienced a record $1 billion in member trades, with an average trade size of $1.5 million.
In comparison, the average trade size on the Australian Securities Exchange (ASX) is about $7500.
Liquidnet also experienced a shift to large-cap trading during the month.
"Traditionally, we have played in the small and mid-cap space, but in February there were more large caps," Macqueen said.
This shift is partly the result of a changing market structure, where fund managers are trying to protect their intellectual property, especially from predatory high-frequency traders, while the advent of a new market exchange provider, Chi-X, also requires these institutions to consider more carefully how to best execute their trades.
Macqueen also said more superannuation funds were building their investment staff as they grew in size, which had seen them looking for the most efficient way to execute trades.
The main reason for fund managers to participate in dark pools - where buyers and traders are anonymous, and the total size of a trade is not known to the buyer - is to ensure they do not have to take a discount on trading large blocks of equities.
"In days gone by, if you were trying to sell 5 per cent of a company, the only way you could do that was practically to come out and say: 'Okay, I want to sell 5 per cent of the company,'" Macqueen said.
Knowing a company had to sell a large chunk of shares meant buyers could ask for a discount, he said.
But today, dark pools match sell orders with buy orders away from public scrutiny and this means the vast majority of their transactions take place at a mid-price of the buy and sell spread.
"We traded a million CSL shares on Friday, which was $33 million-odd in size, and we did that at the mid-price. Instead of having it discounted, we can get these deals done at the mid-price," Macqueen said.
The largest trade the firm has seen in Australia so far was 240 times the average daily volume of the stock on the ASX.
