Hong Kong's SFC bans retail investors from dark pool trading platforms
Only fund managers and experienced investors permitted to trade on city's 16 dark pools
The Securities and Futures Commission will ban retail investors from trading on so-called dark pool electronic trading platforms, where investors do not need to disclose their identity or trading volume, effective December 1.
Only institutional investors such as fund managers or professional, experienced investors with portfolios of at least HK$8 million will be allowed to trade on the 16 dark pools operating in the city.
The move announced by the SFC on Friday was proposed in a consultation paper in February last year. Among the 59 submissions, many supported the SFC tightening regulation of dark pools, also known as alternative liquidity pools (ALPs). However, there were mixed views on whether retail investors should be allowed to trade on the platform, the SFC said.
"A number of respondents expressed concern that the high level of complexity and the opaque nature of the ALPs may place individual investors at a greater risk than sophisticated institutional investors," the SFC said. "Other respondents asserted that it would be unfair if individual investors are barred from enjoying potential benefits of participation in ALPs which may include price improvement and quicker execution."
After balancing all consideration, the SFC stuck with its original proposal to ban retail investors from such trading.
That makes Hong Kong's new dark pool regulation tighter than in Canada and Australia, where minimum trading sizes are used to discourage retail trading on the platforms.