Amid strong quarterly growth figures for block trading venue Liquidnet, the firm’s Australian operations have outpaced much of the group, thriving in a new regulatory environment and competitive market.
In the Asia Pacific region, Liquidnet saw record quarter-over-quarter growth in Australian equities, up 52%.
James Chatfield, head of Liquidnet Australia, said changes in regulations have brought best execution into sharp focus, with firms more comfortable sourcing liquidity from alternate venues.
Watchdog, the Australian Securities and Investments Commission, has stipulated market participants must comply with new best execution obligations by the end of October this year.
“Chi-X Australia was the market’s first foray into a multi-venue environment and this shone a light on the concept of best execution. Portfolio managers, traders and asset consultants now need to have a good understanding of using multiple venues,” said Chatfield. “And whereas before some institutional investors were happy maintaining the broking status quo, they now need a very good reason not to access multiple venues for best execution.”
Alternative trading system Chi-X Australia launched on 31 October. Market participants will need to connect to Chi-X Australia and ASX by October to fulfil the obligation.
A market characterised by large compulsory pension funds, Chatfield said while Australian institutional investors favour block trading the lit market was becoming less conducive to large order sizes. This has further helped fuel the venue’s growth.
“Investors have been increasingly concerned with signalling risk when trading in lit venues and the corresponding increase in their implicit trading costs,” he said, adding the average block size on the ASX is now around A$7,000, whereas five years ago it was A$20,000 and in 2003 it was A$40,000. “Australia is a market where institutions particularly like to trade in blocks. But with growing fragmentation in Australia, investors have been increasingly concerned with signalling risk in lit venues.”
Overall principal traded on Liquidnet in the Asia Pacific region was up 49% quarter-on-quarter, totalling US$4.5 billion and Indonesian equities also saw record growth, up 67%. At the same time, Chatfield said Liquidnet Australia also grew its membership figures.
“We have stringent criteria for our membership. If you don’t have a block trading mentality, our platform is not for you,” he said. “A handful of new members have joined in the last six months and we continue to add new members, bringing our live membership to 48. Last quarter we saw 128 unique liquidity providers in our Australian market.”