BlocSec, the pan-Asian dark pool operated by agency broker CLSA, plans to focus on executing large orders to distinguish itself from the influx of non-displayed trading venues launching in Asia.
Christian Chan, director of electronic execution sales, CLSA, says the decision to remove its US$250,000 minimum order size in November last year has attracted more algorithmic and smart order routing flow, but adds that BlocSec’s average order size remains at just over US$1 million.
“BlocSec was originally designed to limit market impact and improve price on block trades,” Chan told theTRADEnews.com. “Despite removing minimum order thresholds, most participants stipulate a minimum quantity they want to trade against in the pool, which has kept average order sizes high.”
Chan hopes the ability to execute in size will prove to be a differentiator for BlocSec when Chi-East, the dark pool joint venture operated by the Singapore Exchange and market centre operator Chi-X Global, goes live at the end of Q2. BlocSec, which was launched in May 2008, and Chi-East both offer trading in Japanese, Singaporean, Hong Kong and Australian stocks, but the former is open to both the buy- and the sell-side, while the latter effectively serves as an aggregation service for non-displayed order flow from the sell-side. Former BlocSec boss Ned Phillips now runs Chi-East.
Average order sizes in Asia are set to follow the same downward trend as Europe and the US as electronic trading becomes more prevalent and fragmentation of liquidity increases. As such, the value of executing large orders with minimal market impact is set to increase in Asia.
“Chi-East is likely to follow a model that is more prevalent in Europe by allowing more high-frequency and smaller orders from algorithms,” said Chan.
According to data from agency broker ITG, average order sizes on Japan’s Tokyo Stock Exchange have dropped to 300 shares after implementation of its next generation trading platform Arrowhead in January, from 600 shares in December 2009.
Chan also points out that most Asian dark pools have limits on access, e.g. buy-side-only crossing network Liquidnet, broker dark pools such as Nomura’s NX, which launched in Hong Kong last week and only trades client order flow, as well as the sell-side-only Chi-East. This, he believes, can restrict the depth and breadth of liquidity traders are able to interact with.
“When you look at dark pools across Asia, there are very few that are open to both the buy- and sell-side like BlocSec,” he said. “We aim to aggregate a range of liquidity from a variety of sources including our CLSA buy-side customers.”
Furthermore, BlocSec intends to increase its presence across Asia by connecting to global FIX-based communications networks. Earlier this week, BlocSec announced connectivity to Autex Trade Route, the FIX network operated by online trading platform operator Tradeweb.
“It is crucial to maximise our reach within the Asian region to increase awareness and improve the accessibility of the platform,” said Chan. “We are working with more vendors and hope to announce connections to more networks in the near future.”