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AseanAffairs Magazine January - February 2011



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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                                                                      New Dark Pools promise to bring Asia greater liquidity, faster trades and lower costs.
On N11ov. 11, 2010, Chi-East, a joint venture of the Singapore Exchange (SGX) and Chi-X Global, opened in Singapore. Chi-East is headed by CEO Ned Phillips who oversees overall business strategy and development, as well as interaction with participants and other stakeholders.

He says that Chi-East utilizes the same low latency, innovative trading technology as Chi-X. The main difference is in the operating structure. Chi-East is the first independent exchange-backed platform which supports the non-displayed trading of stocks across Asia in Singapore, Hong Kong, Japan and Australia on one single platform. The initial challenge is to provide an efficient clearing and settlement system across all of the markets on our platform.

Phillips believes that Chi-East complements the existing marketplace and supports a more dynamic trading environment in the region.

 Ned Phillips, CEO Chi-East                                                                      

                                                                                  A photo shot of the Chi-East web site. 






Asean Affairs spoke with Ned Phillips in this exclusive interview.

Q: Do Asian markets need dark pools?

Yes. As global capital continues to shift towards Asia, the local fund management industry is rapidly maturing. However, traders in Asia still face large spreads, lower liquidity and more challenges than other markets. The rise of more trading venues such as dark pools will allow the buy-side to pursue better execution, such as the ability to execute large trades with limited market impact.

Additionally, the presence of dark pools will bring more competitive forces in the trading environment, resulting in lower trading costs and improved efficiency, which benefits all market players. Studies show that dark pools increases liquidity and narrow spreads.

Q: Will the Asian customer for dark pools be the same type of customer as those in Europe or the US?

in general yes. The main users of dark pools are institutional buy and sell side. They each have different ways of accessing dark pools. For instance the buy side wants to access block side liquidity while the broker will send algorithims and Sor orders so will have a much smaller trade size.

Q: Why have regulators been slow to accept dark pools in Asia?

Many regulators have been quite open to new trading mechanisms which benefit local market participants. The difference between the US and europe and Asia is that Asian markets do not have a common regulatory framework. We are hopeful that more regulators will support the development of non-displayed trading going forward.

Q: How long will it take for alternative trading systems to take hold in Asia?

This is really subject to the pace of deregulation in each market. Already we have seen Japan open up its securities market to competition and Australia has also expressed its desire to do the same. i think that within the next 5 years, we will start to see more and more countries go down this path.


Q: Do dark pools and flash trading contribute to the fragility of established markets?

There has been no evidence of dark pools affecting the stability or the price discovery function of markets.


Q: financial markets face a “systemic risk” from alternative trading platforms, ronald Arculli, chairman of Hong Kong Exchanges & Clearing ltd., said Dec. 9. Any comments?

There have been many studies on alternative venues and the findings point toward alternative venues improving the liquidity and price discovery for markets. in europe and the US, the levels of usage of the alternative venues would certainly seem to indicate that the users of markets do find benefits from these venues.
We continue to work very closely with regulators and other stakeholders to explain the benefits of dark pools and how they benefit the whole market.


Q: How do you “sell” dark pools to existing exchanges?

Dark pools complement existing exchanges by filling the liquidity gap for investors looking to execute large orders while lowering market impact. Without dark pools, many of these larger transactions may not be fully completed. Hence, dark pools are good for local markets as they enhance liquidity.



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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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