As finding liquidity has become more of a challenge over the last year, UBS is adding a secondary pool to its Price Improvement Network (PIN) in the Asia-Pacific region so that institutional clients can choose what kind of flow they want to interact with in its internal crossing platforms.
The secondary pool will function in a similar way to UBS ATS in the US, launched in 2008, and UBS MTF in Europe, launched in November 2010.
The exact date of the launch, and the name of the new Asia-Pacific venue, has not yet been announced, but it will initially access the Australian Securities Exchange and Hong Kong’s HKEx, as well as the Tokyo Stock Exchange, Osaka Securities Exchange and JASDAQ in Japan, where the UBS PIN network is already operating. UBS also has plans to expand its access in the future to other exchanges in Asia-Pacific that allow internal crossing.
“UBS has a very clear cut model in terms of like-minded, high quality agency flow that’s kept within UBS PIN. We don’t even have our own internal prop desk in there,” said Rebecca Thomas, senior sales for UBS APAC Direct Execution. “Then there are the secondary pools – ATS in the US and MTS in Europe – which are like what we are building for the APAC region here. That adds more choice for the client and also protects them.”
Client protection over crossing rates
UBS, with its large long-only institutional client base, has taken the view that protecting those clients is more important than improving crossing rates at all costs by allowing everyone access to its PIN pool.
“If you’re a large fund manager and you have a very large order to get done, the biggest concern is leakage, and so you care who you interact with,” said Sanji Shivalingam, head of algo and analytics at UBS for APAC. “In dark pools, you can get picked off.”
“Now they will have the choice of just being with very like-minded flow in our internal pool, or interacting with other types of flow: brokers, high-frequency or aggregating services, in the secondary pool,” added Thomas.
UBS’ clients are largely supportive of its approach of keeping the institutional flow separate, according to Thomas. “And while some are frustrated in some respects that they can’t reach us now via the aggregators, they do understand the philosophy. I think going forward you may see a reversal from some of our peers in terms of how their pools are structured.”
Something for everyone
Separating the flow into two venues will also make it easier for UBS to control the kinds of trading activity that occurs, according to Shivalingam.
“Some large clients don’t mind if they interact with different kinds of flow, and we need to give them the opportunity to do that. Other clients are very hesitant to interact with some kinds of flow,” said Shivalingam. “The problem is, if you put everyone in the same pool, it becomes a really hard game: how do you define predatory behaviour, how do you manage and police that. It becomes a full-time job in its own right.”
Once the new venue is established, UBS will look at reciprocal flow with other brokers, as well as at issues such as gaming and pinging.
“For the secondary pool, we will have internal anti-gaming logic and it will be stock-specific, not an arbitrary number for minimum order sizes,” explained Shivalingam.