Chi-East Pte Ltd., the dark-pool stock operator jointly owned by Singapore Exchange Ltd. (SGX) and Chi-X Global Inc., is closing down after trading volumes failed to meet its expectations.
The last day of trading for Chi-East will be May 24, the company said in a notice posted on its website yesterday. Chi-East allowed clients to transact stocks listed in Singapore, Hong Kong and Japan without publicly displaying quotes or names of parties. It had planned to expand into Australia.
Dark pools have grown more slowly in Asia than in the U.S. and Europe because of regulatory hurdles. Fewer than 2 percent of transactions in the region occur through dark pools, according to Greenwich Associates, a Stamford, Connecticut-based researcher. That compares with 13.5 percent in the U.S. and 4.6 in Europe, according to data compiled by Rosenblatt Securities Inc.
“For those in support of competition in the Hong Kong and Singapore stock markets, it is clearly an unfortunate development that the only non-broker trading alternative is closing,” said Jessica Morrison, head of Asia Pacific market structure at Deutsche Bank AG. (DBK) “The low numbers of members, combined with the costs associated with running such a platform, meant it could not get the liquidity needed to be a lasting contender.”
Instinet Inc., Deutsche Bank, Morgan Stanley, Nomura Holdings Inc., UBS AG, Investment Technology Group Inc. (ITG), JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc were among the institutions using Chi-East’s services.
“The launch of Chi-East directly corresponded with a period of slower market volumes globally,” Singapore Exchange said in a statement yesterday. “Although trading volumes were improving, they were still far short of expectations. Due to commercial considerations and expectations of continued relatively weak business prospects, the decision was taken by the board of Chi-East to cease operations.”
Chi-East opened in November 2010. It last published volume figures for the quarter ending September 2011, when the value of shares traded on the system increased to $71.1 million from $23.5 million in the previous quarter.
Chi-X Global is owned by Instinet. In October, Goldman Sachs Group Inc., Getco LLC, Morgan Stanley, Bank of America Corp. and Quantlab Group LP all bought stakes in the company, which operates Chi-X Canada, Chi-X Japan and Chi-X Australia. The branches in Canada, Japan and Australia differ from Chi-East in that they are so-called lit venues, which display bid and offer prices.
Peak volumes for the other three platforms have been 11.6 percent for Chi-X Canada on April 25, 3.7 percent of volume for Chi-X Japan on January 16, and 3 percent for Chi-X Australia on May 4, according to Beth Haines, spokeswoman for Chi-X in Hong Kong.
“We would like to thank you enormously for your support of Chi-East and while we all wish we could have had a different outcome we hope that Chi-East has managed to positively affect the growth of alternative trading venues in the region, and that you as clients have seen some benefits from it,” Chi-East said in a statement on its website yesterday.
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