So-called “dark pools,” or off- exchange trading platforms that don’t display public quotes, will need a few years before they “take off” in Asia, said Magnus Bocker, chief executive officer of Singapore Exchange Ltd.
“Crossing networks of different kinds is a natural evolution of equity markets,” Bocker said in an interview on Bloomberg Television. “There will be a need for investors to have other ways of crossing their trades other than what they do today with the exchanges.”
The growth of dark pools in Asia has lagged that of the U.S. and Europe as regulators in Asia have been slow to accept such systems, John Feng, New York-based managing director of research company Greenwich Associates, said on March 9.
The establishment of dark pools must be done in “parallel to other developments” for it to be successful, said Bocker, who took over as Singapore Exchange CEO on Dec. 1, replacing Hsieh Fu Hua.
As part of such developments, Bocker said his exchange is working to improve liquidity in the derivatives markets, increase the efficiency of its securities borrowing and lending system and broaden distribution networks by attracting more traders.
Dark pools accounted for 1 percent of transactions in Asia last year and their share is expected to rise to 3 percent within three years, according to Greenwich estimates. By contrast, trades through dark pools last year in the U.S. accounted for 10 percent of the total, and 4 percent in Europe, Greenwich estimates.
“The rate of growth in Asia will not necessarily mirror what we saw in Europe and the U.S.,” Lee Porter, managing director of dark pool operator Liquidnet’s Asia-Pacific business, said on Feb. 12. “The landscape is different in Asia. The fact that you’ve got many different jurisdictions in Asia, with many different regulatory frameworks and different levels of openness to bringing in new market entrants, is going to make things difficult.”
Liquidnet operates dark pools in Australia, Hong Kong, Japan, South Korea and Singapore. It offered its services to 592 firms around the world as of the end of September. The company plans to expand its network into New Zealand, Indonesia and Malaysia this year.
Ronald Arculli, chairman of Hong Kong’s stock exchange, said on Dec. 9 financial markets face a “systemic risk” because of the lack of transparency in new trading systems such as dark pools. The exchange said on Dec. 11 it’s not considering the establishment of its own dark pool. Proponents of the platforms say they allow investors to trade large blocks of shares without causing price swings.
Chi-East, a pan-Asian dark pool joint venture between Singapore Exchange and Chi-X Global Inc., is due to start operations in the middle of this year. The platform chose LCH.Clearnet Group Ltd., Europe’s largest clearing house, to process trades in Hong Kong, Japanese and Australian securities, LCH said on Nov. 18. Trades in Singapore equities will be cleared by the city’s bourse.
Exchanges worldwide have been building new platforms in response to competition from alternative trading systems. Loss of market share dragged down London Stock Exchange Group Plc’s revenue in the three months ended Dec. 31 by 9 percent, the company said on Jan. 21.
The London exchange agreed in December to merge its Baikal dark pool unit with Turquoise in a deal that will give the bourse 60 percent of the new pan-European trading venture.
The Tokyo Stock Exchange introduced a faster trading system in January amid growing competition, while ASX Ltd., which runs Australia’s main stock exchange, is installing a new system this year.
To contact the reporter on this story: Jonathan Burgos in Singapore at firstname.lastname@example.org.