Bookmark & Share
THE Singapore Exchange (SGX) has become the first Asian bourse to set up a 'dark pool' - a special under-the-radar trading platform for very large share trades between institutional investors.
Globally, a lot of these large-scale transactions take place on 'dark pools' run by large brokerages, or on trading platforms launched by exchanges that offer a degree of trading anonymity.
The SGX has now decided to offer a similarly private Asia-wide trading platform. It is partnering US market technology company Chi-X Global in a 50:50 joint venture.
On bourses, the market quickly learns of large deals as share trading orders go into the system.
However, in a dark pool, if a fund manager, for example, buys a large chunk of shares, word does not get into the market - until the deal is done. This is important as market speculation based on large trades can cause major price changes.
The joint venture is aimed at a wider market than Singapore-listed counters. It is also aimed at stocks traded on the Australian, Hong Kong and Japan bourses.
SGX said that it may later look to include other Asian stocks.
SGX has achieved a first-mover advantage as it will be the first dark pool in Asia backed by a stock exchange.
'SGX is pleased to offer Asia the first exchange-backed dark pool, which will complement exchange trading by reducing the market impact of large trades,' said SGX head of markets Gan Seow Ann.
It is hoped that trading can get off the ground by the first half of next year.
At SGX's full-year results briefing earlier this month, chief executive Hsieh Fu Hua noted lower market turnover, partly due to the drying up of new listings.
He identified 'key drivers' that could boost growth, including expanding the derivatives business to encompass commodities and extending over-the-counter clearing to financial derivatives.
'Also, we note the emergence of alternative trading platforms such as 'dark pools' in the US and Europe. These are expected to increasingly feature in Asia... and present opportunities for SGX to expand its Asian gateway,' he said then.
At present, this sort of share trading activity represents only a fraction of overall trade: about 1 to 3 per cent in Asia, about 10 per cent in Europe and about 20 per cent in the United States.
The proportion in Asia is expected to grow, given the influx of global investors in Asia in recent years.
However, it remains to be seen if existing large trades will move to the new platform. One advantage is that the platform is independent of any brokerage.
SGX head of market development Chew Sutat said: 'We believe the joint venture will attract new liquidity into the region, not just benefiting institutional investors but retail investors as well.'
He added: 'Dark pools trading already takes place. We provide an electronic platform which provides anonymous and secure trading. We hope that the venture will add to the growing sophistication of the capital markets.'
While the trading platform will cater more to larger institutional investors such as fund managers, Chi-X Global chairman Tony Mackay believes retail brokers may enter the picture eventually.
For example, large shareholders of smaller listed businesses may want to sell chunks of their stake - and they may also not want to let the market know they are offloading large stakes as the price may drop much quicker.
Search Property News
