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DARK POOLS INVADE ASIA
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AseanAffairs Magazine January - February 2011
CONTENT • ASEAN TALK
ASEAN COMMODITIES • ASEAN TECH
• ASEAN CORPORATE GOVERNANCE

• ASEAN TRAVELLER

• ASEAN ECONOMICS • BEYOND ASEAN  
• ASEAN ENVIRONMENT  INSIDE OUT 
• ASEAN POLITICS    • OPINION    
• ASEAN REAL ESTATE    • SAVE OUR PLANET

DARK POOLS INVADE ASIA
With the growth of the Asean economies, David Swartzentruber reports on the entry of Dark Pool electronic trading platforms into the region.



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Ronald Arculli, Chairman Hong Kong Exchanges & Clearing Ltd. 

ronald Arculli, chairman of Hong kong exchanges & Clearing ltd, has criticized dark pools for their lack of transparency. Financial markets face a “systemic risk” because of the lack of transparency, Arculli said Dec. 9, 2010. even more outspoken is Venkatachalam Shunmugam, Chief economist, Multi Commodity exchange of india, who argues that the rising opacity and barriers to entry in these markets have been overlooked leading to dark pools, flash trading, and front-running. These unfair practices can–at any time–cripple markets. They undermine the premise of free markets and should be stopped, he contends.


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Anshuman Jaswal, Analyst Celent Securities, Bangalore 

in an october 2010 report for consulting firm Celent, Anashuman Jaswal argues that dark pool adoptions in Asia will take longer to develop than in the US and europe, because of regulatory restrictions and significant retail trading that will remain the key barrier for their growth in Asia. While Jaswal expects a growth in the utilization of advanced order types and trading tools (such as algorithmic trading and smart orders), he predicts that they will not flourish to the extent that they have in the US and european markets.

Taking the pros and cons into account it does seem that dark pools could have a beneficial effect on Asian markets.

For example, the average trading costs in the developed Asian markets are 66 percent higher than in the U.S., according to investment Technology Group ‘ s press release announcing poSiT Marketplace’s Asia launch.Dark pools are known for cutting costs as some venues allow trading at the midpoint between the bid and the ask price.

 

 

Jamil Nazarali, head of Knight Capital Group’s dark pool 

Countering those claims many say investors should not be afraid of dark pools. “Although the term dark pool sounds very sinister, retail investors have nothing to fear,” said Jamil nazarali, head of knight Capital Group’s dark pool, called knight link. “Although the term dark pool is relatively new, the concept of crossing off exchange liquidity has been with us since the beginning of stock trading. institutions have always crossed large blocks off exchange and the large sell side firms have facilitated this,” he concludes. The executions done in dark pools are only hidden from the public and other brokers before and during trading. “i think it is important to remem-ber that dark only refers to a pretrade state. once a trade occurs, regardless of the venue, it is reported to the consolidated tape,” said Tim Mahoney, chief executive of BiDS Trading and co-developer of the new York Block exchange, a joint venture between BiDS and the new York Stock exchange.

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Paul Scott, FIXCITY 

paul Scott, director of trading solutions specialist FiXCiTY, explains that increased electronic trading means financial institutions can execute trades and secure liquidity from many different venues. “Automated platforms offer the opportunity to match ‘off exchange’ with other buyers and sellers, without showing the available liquidity to the market,” he says. “Dark pools refer to the non-displayed or hidden nature of the buy and sell orders that reside in a crossing platform. The term dark liquidity can also be applied to all forms of non-displayed liquidity such as the order blotters of buy-side dealing desks.”

 

 

Gan Seow Ann, SGX President and Chi- East Chairman 

Gan Seow Ann, SGX president and Chi-east chairman, says the strategy of the new dark pool is to attract new types of market participants and cater to the changing demands of customers. Among the sellside brokers that have committed to bring their liquidity to the platform are instinet, Deutsche Bank, Morgan Stanley, nomura and UBS, he said.

 

 

Zach Tuckwell Morgan Stanley Managing Director, Asia Electronic Trading 

Zach Tuckwell, Head of electronic execution and program Distribution in Asia at Morgan Stanley, said, “We are proud to support and participate in the launch of Chi-east. We believe it will stimulate liquidity in the region and provide additional execution opportunities for participants. We look forward to providing access to clients interested in trading on this innovative new trading venue.”

 

 

Ned Phillips, CEO Chi-East, Singapore 

Chi-east Ceo ned phillips described the birth of the newest dark pool in Asia as complementing the existing marketplace and as supporting a more dynamic trading environment in the region.

 

 

Lee Porter Managing Director, Liquidnet, Hong Kong. 

“The increase in Tostnet’s share of trades shows use of dark pools is growing in Japan,” said lee porter, Hong kong-based managing director for liquidnet Holdings’ Asian dark pool operations. “Most of the major broker dealers have now deployed their dark pools in Japan. You are now seeing the Japanese domestic brokers doing the same too, so clearly there is appetite.”

 

 

 

 

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Jamil Nazarali, head of Knight Capital Group’s dark pool 

Countering those claims many say investors should not be afraid of dark pools. “Although the term dark pool sounds very sinister, retail investors have nothing to fear,” said Jamil nazarali, head of knight Capital Group’s dark pool, called knight link. “Although the term dark pool is relatively new, the concept of crossing off exchange liquidity has been with us since the beginning of stock trading. institutions have always crossed large blocks off exchange and the large sell side firms have facilitated this,” he concludes. The executions done in dark pools are only hidden from the public and other brokers before and during trading. “i think it is important to remem-ber that dark only refers to a pretrade state. once a trade occurs, regardless of the venue, it is reported to the consolidated tape,” said Tim Mahoney, chief executive of BiDS Trading and co-developer of the new York Block exchange, a joint venture between BiDS and the new York Stock exchange.

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