Over the next three years, volumes in alternative trading systems (ATSs) and dark pools are set to mushroom. That is according to a panel of industry experts and delegates at last Thursday’s Asia Pacific Trading Summit, held in Hong Kong. The event was organised by the FIX Protocol Limited, the message standards organisation.
In an audience survey, 31% said there would be ‘fast growth’ (7% to 10%) in ATSs and dark pools, as a percentage of overall volume in the Asia Pacific region during the next three years. A total of 31% of the audience opted for moderate growth (5% to 7%).
“I’m optimistic that ATSs and dark pools will grow in Asia. There will be new markets, such as South Korea. There has been more fragmentation in India. Regulators and Asian markets seem to support the idea of more participation,” said Shamu Thambi, a liquidity strategy and market structure specialist and director in Morgan Stanley electronic trading in Hong Kong,
Even though growth is predicted, Asian dark pool volume is starting from a low comparative base, as one delegate commented.
“There’s only 2.8% traded in the dark in Hong Kong, and I’d like to know who is behind that business.”
How much data should be available on dark pool volumes? As one speaker noted on the broad question of trading anonymity and confidentiality, one man’s “transparency” is another man’s “information leakage”.
“Regulators said, ‘lets increase competition, transparency and fairness’, but it got hi-jacked and became politicised in order to prevent a future crash,” said Steve Grob director of group strategy at technology vendor Fidessa. “They favoured retail over institutional, missing that retail business often gets consolidated through institutions. Plus it is hard to draw a regulatory line in the sand and say one side is fair and the other side isn’t.”
Throughout Asia, regulators and markets in different countries are all looking at one another, looking for leads and precedents in the regulation of off-exchange activity. However, each have their own take on what their own national rules should be.
“We see demand for diverse block liquidity in emerging markets in Asia, but each has their own challenges with what you can and can’t do,” said Ofir Gefen, director and head of research and algorithm consulting in Asia at ITG in Hong Kong.
Strong growth in any aspect of market infrastructure in Asia is a good aspiration, but in any three-year time horizon, Asian countries are going to be conditioned by their own pace.
Reform may only be on their menu to the extent that it fits with the national timetable, and that is not something that outsiders can ever predict with certainty, or influence materially.
“One thing that has been bothering me is that Thailand has been trading more than Singapore and Malaysia combined, but there have been no market improvements or regulatory moves,” said David Rabinowitz, the head of direct execution of Asian equities at UBS in Hong Kong. “The Thais still have the same lunch hour as they did ten years ago. Spreads there are 65 basis points, the second highest in the region behind Indonesia. Volatility is high. There is still plenty of liquidity there, so perhaps that encourages them to maintain the status quo.”