Dark pools of liquidity could be on their way to the Hong Kong mainstream, and one of those pools is potentially being set up in Singapore this year. Is Asia catching up to the US and Europe in this shadowy arena?
Risk magazine has the story on an intriguing arms race in Asian equities innovation:
The Singapore Exchange (SGX) plans to launch Asia’s first exchange-backed dark pool in a joint venture with Chi-X Global, an affiliate of Chi-X Europe, the biggest pan-European equities multilateral trade facility, in the second or third quarter. However, [HKEx COO] Greiner says the creation of a joint venture model to offer dark pool facilities is one of the many possibilities the HKEx is considering…
…Greiner’s comments fall short of providing firm plans, but appear to represent a more accepting attitude towards dark pools compared with comments made by HKEx chairman, Ronald Arculli, in December last year. Arculli said dark pools risked jeopardising fair price discovery for investors and the level playing field afforded by trading on exchanges.
But as the Risk story also makes clear, Asian regulators (and indeed, exchanges) aren’t quite convinced of the proposition – echoing, we might add, a veritable chorus of regulators in Europe and the United States.
Broadly speaking, regulators are in favour of exchange-based trading for dark liquidity – an idea which is gaining traction.
We’ll leave it you to decide whether exchange-based status is or isn’t an existential contradiction in terms for dark pools.
We’ll just note that dark liquidity has already held some promise for making Asian equities trading much more competitive – although off-exchange trades still account for only about one per cent of trading turnover in the region, the FT notes that this could increase many times over in the near future.
Hence it’s important when two Asian exchanges start fighting to provide the best access to dark pools in the region. Certainly, it’s a way to wrest back control.
But it’s also about who will become Asia’s biggest, most technologically advanced, and most influential financial centre in the medium term.
After all, a network at one exchange could quickly scale up to regional trading, as the Asian Investor noted at the time of the SGX deal’s announcement.
And given that the FT recently found that Asian exchanges have overtaken their European counterparts in the values of equities being traded – well, that’s all rather a big deal.
Related links:
Why are regulators afraid of the dark? – FT Alphaville
Dark pools and HFT finally catch Schapiro’s eye – FT Alphaville
Outshone by Shanghai’s rising sun? – FT Alphaville
Asian electronic trading: you ain’t seen nothing yet – FT Alphaville