ITG (Investment Technology Group) is rolling out its POSIT Marketplace liquidity aggregation platform in Japan. The launch follows its bow in Hong Kong and Australia, where it enjoyed strong growth in recent quarters as the first dark pool aggregator.
According to ITG, the platform has been delivering an average of 13 basis points of price improvement on equity trades in Australia and Hong Kong throughout 2011, as well as almost tripling volumes between the first and second quarter.
“Finding liquidity continues to be a challenge for institutions trading Asia Pacific as the choice of off-exchange and dark pool liquidity grows,” said Michael Corcoran, head of sales and trading for ITG in Asia Pacific. “Japan is a market where there is strong demand for liquidity aggregation, given the growing number of liquidity pools and the higher level of average trading costs compared to markets such as the US.”
Corcoran said POSIT Marketplace had built up a strong track record in Asia Pacific and was growing in adoption as buy-side firms started to experience the benefits. These included the ability to access nine of Asia Pacific's largest dark liquidity providers – a total of 16 individual ”pools' across the different markets – through a single point.
According to ITG, average fill rates were now consistently over 10%, with some large electronic users reaching over 30%+ fill rates on their trading.
“Given the price improvement benefits, this is generating significant positive trading performance for clients which is then driving the submission of more liquidity into POSIT Marketplace,” added Corcoran.
Asked why ITG had chosen to launch the platform in Hong Kong and Australia before Japan, Corcoran said: “POSIT Marketplace Japan has been a goal of ITG all along but structurally it can be a complex market when it comes to reporting, clearing and settlement – more so than Hong Kong and Australia.”
However, he said the past year had seen some particular changes in Japan which was driving interest in dark pools higher. In the past 10 months, the market share of proprietary trading systems (PTSs) has taken off, with reports up to 6% of the Tokyo Stock Exchange's turnover, bringing new types of liquidity into the market.
The Japanese market is an important one for international investors, Corcoran asserts, driving strong demand for trading tools which help minimise trading costs. The high percentage of electronic trading in the market also suits dark liquidity and liquidity aggregation.
“Japanese trading costs have also seen a certain amount of volatility given market events, and finding liquidity has been particularly challenging,” said Corcoran. “Buy-side firms are therefore looking for dark liquidity tools that help them minimize information leakage and for pre-trade anonymity, while increasing their chances of finding liquidity.”
The buy-side trader's experience will be the same whether their trades are crossed in POSIT Marketplace Japan, Hong Kong or Australia, according to Corcoran.
“However, there are some differences in terms of the back-end structure to take into account market differences, which ITG handles. This includes which dark liquidity pools are available, the hours traded, different reporting requirements and different clearing and settlement structures,” he said.
POSIT currently has more than a 6% share of total European dark liquidity, while in the US, POSIT's average daily volume was 83 million shares in the second quarter of 2011, up 20% on the corresponding period last year.