A call from so-called dark pool operators for changes in the law to allow them to compete directly with the bourse has been rejected by the chairman of the Hong Kong Exchanges & Clearing, Ronald Arculli, who said such a move would give them an unfair edge.
'The HKEx does not mind facing competition. However, any kind of competition should be on a level playing field,'' Arculli told the South China Morning Post, adding that dark pools would have to operate under the same regulatory regime as the HKEx if they were to compete directly.
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.
In the US and Europe, dark pools can compete directly with traditional exchanges, which have been building faster networks as the new competition erodes their turnover. Some traditional exchanges' turnover has fallen by 60 to 70 per cent because of dark pool competition, and some are taking over dark pool operators to boost their volumes.
Singapore Exchange teamed up with a dark pool operator, Chi-X Global, in November last year to launch the first exchange-backed dark pool, Chi-East, to trade Singapore, Hong Kong, Japanese and Australian shares.
Hong Kong law requires any dark pools in Hong Kong to be members of the exchange and to report all trades back to the HKEx, and investors using dark pools still have to pay stamp duty to the government and trading fees to the HKEx.
This prevents direct pressure on the HKEx, and means the 12 dark pool operators in Hong Kong have a market share of only 3 per cent, prompting the calls from some operators for Hong Kong to align itself with other exchanges and allow direct competition.