Chi-East closes as other Chi-X venues claim market share

Billed as the first multi-regional dark venue, Chi-East – a joint venture between Chi-X Global and the Singapore Exchange – has closed shop.

Billed as the first multi-regional dark venue, Chi-East – a joint venture between Chi-X Global and the Singapore Exchange – has closed shop.

Chi-East began on 11 November 2010 as an independent liquidity aggregator for stocks listed in Hong Kong, Japan and Singapore. Initially, it was intended Australian securities would also be offered, but a week before launch, the Australian Securities Exchange terminated Chi-East’s market data feed. The joint venture was formed as owner Chi-X Global was looking to secure venue licences in Australia and Japan. Chi-X Japan launched in July 2010 and Chi-X Australia in October 2011.

But as Chi-East winds up, Chi-X Global’s other venues have found considerable success and it is understood the company will continue to concentrate on building on these single market-specific strategies.

In North America, by 25 April, Chi-X Canada had garnered 11.61% of the volume and 13.62% of the value traded. On 16 January, Chi-X Japan hit a high of 3.70% of the volume traded and 3.86% of the value traded in Japan and by April held 2.09%. Fledgling Chi-X Australia traded 3% of the value traded on 4 May.

“Unfortunately, the launch of Chi-East directly corresponded with a period of slower market volumes globally,” said Ned Phillips, CEO of Chi-East. “Although trading volumes were improving, they were still short of expectations.”

Phillips said commercial considerations and continued expectations of relatively weak business prospects caused the firm’s shareholders to mutually agree to cease operations of Chi-East.

“I would like to thank SGX and Chi-X Global, the clients and vendors who connected to us, the staff of Chi-East and all who put time, effort and financial resources towards Chi-East,” Phillips said. “I hope that even though ultimately Chi-East has not proven a commercial success, we have had a positive impact on the growth of alternative trading venues in Asia.”

Chi-X Global is a subsidiary of agency broker Instinet, a wholly-owned subsidiary of Japanese investment bank Nomura. Sell-side participants which originally committed to trading in the Chi-East dark pool from launch included Deutsche Bank, Instinet, Morgan Stanley and Nomura.

“Chi-East will hopefully be seen as an initiative that was at the forefront of the industry with an aim to create more market competition and change the industry for the better. Unfortunately it seems this was too far ahead of its time,” said Greg Lee, head of Autobahn equity, Asia at Deutsche Bank.

On news of its demise, the industry has been widely complimentary of Chi-East’s efforts.

“The model in other markets has been a great success and Chi-East were hoping to push the envelope,” said Yang Xia, head of direct execution, Asia Pacific at UBS. “It was a good exercise and the only multi-market venue that has been attempted in Asia. Unlike Europe, markets in Asia are extremely different, with individual costs, reporting and regulation – they don’t talk to each other.”

Chi-X has been a runaway success in other markets – especially Europe, where in December rival BATS Europe purchased the firm for an estimated US$360 million. BATS Chi-X Europe retained its position as the largest pan-European market last month with 24.6% market share, compared with 23.2% a year earlier.