Asia’s Exchange Darkpools Lightup
I am not talking about the widely publicized and anticipated Singapore Exchange (SGX) and Chi-X joint venture Chi-East but about the Korea Exchange (KRX) and the Australian Securities Exchange (ASX). Block trading is nothing new to these exchanges but offering a dark block facility is something else entirely at least for Asia.
The ASX launched VolumeMatch June 28 to tap into that upstairs flow and offer competitive trading services in a market that is sure to be cut throat once ASIC lets loose the incumbent providers (Q1 2011 it looks like). It operates like a pre-opening session in 3 minute buckets with an extra 2 minutes added to clear the order book. This dark order book is separate from the ASX Central Limit Order Book (CLOB) but derives the crossing price (called Equilibrium Price) from the prevailing CLOB price during the 3 minute mini-session. If your price doesn’t meet the EP you don’t get filled. There is also a minimum quantity (Equilibrium Price Quantity) that your order has to satisfy as well also calculated during each mini-session. VolumeMatch is available from 10:30h to 15:30h and requires a minimum order size of A$1,000,000 (~ USD880,000) with minimum trades of A$500,000. While a breakthrough in terms of profession institutional trading services it seems like a high maintenance proposition where you have to watch your bucket every few minutes to see if you are done or not and if not re-enter your order.
Most buy-sides are content with VWAP and that takes us to A-Blox offered by the KRX. These crosses are done at VWAP either all day if your block trades in the off-hour session from 07:30h to 08:30h or at match point during the regular session (09:00h – 14:30h) which calculates VWAP from the time of your trade. Thus, you enter your orders without a price into this continuous matching darkpool. Minimum order size is 500 million KRW (~ USD42,000) or 200 million KRW for Kosdaq names and with quantity being a multiple of 100 shares (or 1 share for Kosdaq). Short selling is allowed too. I am not sure if the 30bps exchange fee applies for sales (most probably) on this type of trade but with transaction costs running at 52bps* on the KRX A-Blox is sure to be well received by Korea’s electronic trading industry.
As more alternative trading venues appear in Asia driven by regulatory openness and buyside demands each will have its own flavor and localized features to tap into. It’s not likely that a pan-Asia regulatory mandate will prevail anytime soon but the national exchanges are finally seeing the light and evolving their electronic trading services. Perhaps s global regulatory regime under the World Trade Organization might make more sense in the long run.
*ITG May Liquidity Barometer