Dark Rises in the East

Terry Flanagan

While many regions outside of the U.S. have been slow to embrace dark trading, market participants in Asia are starting to accept the prospect of off-exchange liquidity.

“With markets like we’ve had, anonymous crossing platforms with quality liquidity become increasingly attractive,” said Glenn Lesko, chief executive of Instinet’s Asian operations. “The growth of our pools throughout the region underscores the embrace of off-exchange trading that we’ve seen by Asian institutions generally.”

Instinet operates a set of alternative trading platforms throughout Asia including Australia, Hong Kong, Japan and South Korea. Last year, Instinet saw its BLX Hong Kong pool grow by nearly 600%, while its CBX Japan unit saw 225% growth. Its JapanCrossing anonymous crossing platform, launched in 2003, traded an average of about $75 million per day in 2011.

Dark trading on proprietary trading systems in Japan reached about 8% as of late 2011. Dark trading accounts for about 11% of equities volume in the U.S.

Similar to Japan, Canada has also seen a slow adoption of dark trading although that is also changing. At the start of 2011, dark trading was about 1.5% of overall Canadian equities. By the start of this year, that figure was over 4%.

In addition to operating a host of dark pools globally, agency broker-dealer Instinet also owns Chi-X Global, the parent company of a host of lit alternative trading platforms in Canada, Japan and Australia. Chi-X Europe, which was the company’s initial offering, was spun off as a separate entity in late 2007 to a consortium of financial institutions. Kansas City-based BATS Global Markets now owns 100% of Chi-X Europe.

The Chi-X units in Canada and Japan have seen varying degrees of success to date. Launching around the same time, Chi-X Japan has garnered about 3% of the market share in Japan while Chi-X Canada has reached about 12% of trading volume in Canada. Market observers expect the recently launched Chi-X Australia to take about a 10% share of the Australian market within its first 12 months. Chi-X Global also operates Chi-East, a joint dark pool venture with the Singapore Exchange, and Chi-Tech, a technology services unit.

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