Chi-East, the sell-side dark pool jointly operated by trading venue provider Chi-X Global and the Singapore Exchange (SGX), started trading today, but without Australian stocks after the Australian Securities Exchange (ASX) – SGX's putative merger partner – pulled its market data feed.
The platform had intended a soft launch in which it initially traded five stocks each from of Japan, Singapore, Hong Kong and Australia, before expanding to its full universe of stocks on 29 November.
But last week the ASX terminated the market data feed that was essential to Chi-East's plans to offer trading in Australian stocks.
“We will not be launching with Australia; we will be launching with Singapore, Hong Kong and Japan. We had hoped to launch with Australia, but we don't have the data, so we cannot match the trades. We're still hopeful that we will get the necessary data in future,” said Ned Phillips, CEO, Chi-East.
A spokesman for ASX said that the exchange discovered that Chi-East had been using its data via information vendors “in an unauthorised fashion” some months ago and had asked that the distribution of data cease. ASX says it has written to Chi-East saying that it is willing to have “constructive discussions” about the dark pool's market information requirements. Details of any sale of market data by third-party vendors – including the name of the end-user firm and the nature of the usage – is typically pre-authorised by exchanges as originators of the data.
While Chi-X Global is a joint-venture partner with SGX, it is expected to compete with the ASX after the Australian government granted in principle the firm's application to operate a market centre. In October, SGX and ASX announced a merger worth S$10.7 billion (A$8.4 billion).
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. “A number of firms were keen to be pioneers, to be involved from day one, but others will join in the coming months. Not a single bank has said that they don't want to connect,” said Phillips. “Over the next six to 12 months, we believe we'll get all the major investment banks and some local brokers too.”
Phillips compared Chi-East with Chi-Delta, the dark pool operated by Chi-Europe that is accessed by brokers and high-frequency trading firms. “To date, there hasn't been a sell-side liquidity aggregator in Asia. All the brokers have smart order routers, but not a pan-Asian mid-point matching system to direct them at,” he asserted.
Immediately after 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. Phillips says the new platform must stand or fall on its ability to attract liquidity. “There's no regulatory requirement to print that data. It's a business decision. In Asia, dark pools still have to prove themselves. The brokers need to know how much flow is in the pool,” he said. “They also want to see lower costs and changes to clearing and settlement fees.”
Chi-East, which is regulated as a recognised market operator by the Monetary Authority of Singapore, offers a multi-market central counterparty (CCP) clearing solution in the non-Singapore markets through European clearing house LCH.Clearnet. Global bank Citi will act as LCH's settlement agent, connecting it to the relevant central securities depositories. Singapore trades will be cleared and settled through SGX's Central Depository facility. However, the CCP solution will not be available for Hong Kong for tax reasons. As in the UK, stamp duty is levied in Hong Kong per transfer of ownership, which occurs twice when a CCP clears a trade.