Australia’s biggest dark pool had its busiest trading day on record last month as asset managers steered orders toward the venue that doubled in size during the past two years, according to its operator.
Centre Point, owned by ASX Ltd., matched A$451 million ($422 million) of bids and offers on April 29, the most ever, according to the firm’s head of trading services, David Raper. Trades totaled A$5.5 billion for the month, down 3.5 percent from March. Volume on ASX’s so-called lit market slipped this year to an average 1.6 billion shares per day, compared with 1.8 billion over the past five years.
Dark pools have come under scrutiny from regulators in the U.S. this year after Michael Lewis’s best-selling book “Flash Boys” portrayed an equities market where exchanges, broker-dealers and high-frequency traders are conspiring to cheat investors. In Australia, regulators ensure that dark pools have to beat the best public quote, something exchange chiefs at NYSE Euronext and Nasdaq OMX Group Inc. have asked the Securities and Exchange Commission to implement.
“The support we are getting from more institutional investors is driving that growth,” Sydney-based Raper said in a phone interview. “Our rules are public, our procedures are public, we report all our trades and orders in real time and there’s no conflict of interest because we don’t trade in the pool. That’s all exceptionally important to the buyside.”
About 25 percent of Australian equity trades take place in dark pools, where customers’ orders are executed privately instead of being sent to public exchanges. That compares with about 40 percent in the U.S. For investors such as BlackRock Inc., the world’s largest money manager, the pools make it easier to buy or sell large blocks of stock.
Trade sizes in the ASX dark pool average A$6,000 and on any given day there are also between 20 and 30 trades worth more than A$500,000 each, Raper said. The pool is Australia’s biggest, according to Carole Comerton-Forde, a professor of finance at the University of Melbourne.
Rules enacted in May last year require dark pools in Australia to achieve a better price than public venues by at least one tick size, or occur within the midpoint between bids and offers. The rule is only applicable to below block-size trades. Centre Point made this a prerequisite when it opened in 2010, predating the regulation.
Since it began, ASX’s dark pool has saved investors A$275 million compared with public prices, more than the total of its exchange fees, according to Raper. The system counted Bank of America Corp., UBS AG and Deutsche Bank AG as its top three participants in April, which all have their own pools.
“Operators of other dark pools use it because of the large amount of liqudity that is there,” said Raper. “They’d rather match in their own dark pool but because the liquidity is there and because the end user is increasingly demanding that they use our product, the sell-side are using it as well.”