Dark-pool operator eyes Asia

PUBLISHED : Friday, 21 October, 2011, 12:00am
UPDATED : Friday, 21 October, 2011, 12:00am


Dark-pool operator Liquidnet is in talks with major stock exchanges in Asia to try to form partnerships, building on similar links that it has secured in the US and Europe.

However, Liquidnet founder and chief executive Seth Merrin said his company was not competing with traditional exchanges but wanted to set up partnerships with Asian bourses to allow Liquidnet's institutional clients to trade with customers of other local brokers more easily.

'We are in talks with major exchanges in Asia about partnerships,' Merrin said, without identifying any bourses.

'I am confident we can make an announcement in 2012.'

Dark pools are popular in the United States and Europe and allow investors to trade large blocks of stocks via an electronic trading platform without disclosing their identities, price or volume. Traditional exchanges worldwide have been building faster networks in response to competition from alternative platforms like dark pools and other electronic channels that are eroding their turnover. Some stock exchanges in the US and Europe have also developed their own dark pools or have teamed up with dark pool operators such as Liquidnet.

In Asia, Singapore Exchange teamed up with a dark-pool operator Chi-X Global in November to launch the world's first exchange-backed dark pool, Chi-East, to trade Singapore-, Hong Kong-, Japanese- and Australian-listed shares.

But laws require that any dark pools in Hong Kong must be a member of the Hong Kong Exchanges and Clearing (HKEx), which prevents direct competitive pressure.

There are around a dozen dark-pool operators in Hong Kong - all trading for institutional investors such as pension funds or insurance companies. In August, HSBC wanted to launch the first dark pool for local retail investors but the plan was later limited to institutional investors only because of a licence restriction imposed by the Securities and Futures Commission.

'We are not in any specific talks with dark-pool operators,' an HKEx spokeswoman said yesterday.

Local brokers believe HKEx does not have much incentive to team up with dark pools because of its monopoly status in the local market, which means all dark-pool operators must be HKEx members and report all trades.

But Lee Porter, Liquidnet's Asia-Pacific managing director, rejected suggestions that Liquidnet could not add value in a partnership. He said Liquidnet now only traded between individual fund managers. A partnership with a traditional exchange in Asia would allow Liquidnet's global institutional investors to trade more easily with local brokers who were members of the traditional exchanges.

'We believe that the most efficient market is where the wholesale market can interact efficiently with wholesale, and can also absorb the additional demand of the retail,' Porter said. 'That said, we are not currently looking at having retail flow interact with our wholesale flows.'