Ned Phillips, CEO of Chi-East, which prides itself on the introduction of the first central counterparty clearing (CCP) model for selected Asian securities, says it was chosen for Japan due to its success in Europe.
“The concept of the CCP has been very well used and very well received in Europe, and offers cost savings and efficiency savings as well. For Asian markets, due to the market structure, we decided that the most efficient way to clear was to use the current infrastructure from the exchange for clearing and settlement. In Japan, most trades are cleared through Japan Securities Clearing Corporation (JSCC), but we decided that it was the best market to use a CCP and we chose LCH.Clearnet because it is a leader in clearing in Europe,” he says.
“Due to the market structure, we decided to use the existing clearing and settlement solutions for Hong Kong and Singapore, so any trade done on Chi-East in Hong Kong and Singapore would be reported, cleared and settled in the same way that any off-market cross would be done,” Phillips adds.
LCH.Clearnet is an independent financial clearing house serving major international exchanges and trading platforms, as well as a range of over-the-counter (OTC) markets. Its main business is in Europe where it clears for commodity, derivative and equity exchanges, as well as being the largest OTC interest rate swap clearer. It clears a broad range of asset classes including securities, exchange-traded derivatives, energy, freight, interbank interest rate swaps and euro and sterling denominated bonds and repos. LCH.Clearnet was formed from a merger of the London Clearing House and the Paris based Clearnet, both of which were originally based on clearing commodity transactions.
In comparison, Singapore trades on Chi-East's platform will be cleared and settled through the Singapore Exchange's own central depository facility. In Hong Kong, clearing is done through the exchange operator HKEx's CCASS/3, a book-entry system in which trades are settled on a continuous bet basis or on a trade-for-trade basis.
Chi-East, the sell-side dark pool operated by trading venue provider Chi-X Global and the Singapore Exchange (SGX), is regulated as a recognised market operator by the Monetary Authority of Singapore. It launched in November with Singapore, Hong Kong and Japan.
Chi-East had intended a soft launch in which it would initially trade five stocks each from these three markets and Australia, before expanding to its full universe of stocks on 29 November. But the Australian Securities Exchange (ASX) – SGX's putative merger partner – terminated its market data feed in a move that bulldozed Chi-East's plans to offer trading in Australian stocks. Chi-East had also originally intended to use the CCP solution for Australian securities traded on its platform.
Chi-East's full stock universe includes all stocks, exchange traded funds and America depository receipts listed on the Singapore Exchange, the Hang Seng Index, all Hong-Kong listed H-shares, and Japan's Topix 1,000. Sell-side participants that have committed to the trading in the dark pool from launch include Deutsche Bank, Instinet, Morgan Stanley, Nomura and UBS.
“We'll like to have Australia at some point next year. We're still working on the data feed and once we have that secured, we'll definitely launch Australia,” Phillips adds. “We've got a big pipeline of future participants coming. Certainly in the new year, we'll have a good number of new participants coming on board.”
Early in the new year, Chi-East will release volume data to third-party vendors such as Bloomberg, Thomson Reuters, SunGard and Fidessa on a post-trade basis. “We've had good order flows, trades, different pipes of order flows and interactions with our clients. Certainly in the new year, we'll set a date and we'll be releasing data then.”