Citigroup to Start Singapore Dark Pool Stock Trading in 2011
Citigroup Inc., the third-biggest U.S. bank, says it will start so-called dark pool electronic trading in Singapore early next year to meet growing demand in Asia.
The bank is expanding its regional footprint after its off- exchange trading in Australia increased to a record A$1.5 billion ($1.3 billion) in June from about A$700 million to A$800 million a year earlier, said Paul Sanger, Citigroup’s Asia- Pacific head of execution services. He declined to comment on when the Singapore platform would start operating.
“We’ve doubled volumes in Australia in a very quiet month,” Sanger said in a telephone interview. “That’s very encouraging. We’re hoping the rest of the markets will similarly grow.”
Dark pools are trading venues that don’t display quotes publicly, helping investors minimize price fluctuations and save costs. The growth of such networks in Asia has lagged behind the U.S. and Europe because regulators in Asia have been slow to accept the systems, John Feng, New York-based managing director of research company Greenwich Associates, said on March 9.
The portion of trades handled off public exchanges in the Asia-Pacific region is forecast to rise to 3 percent of transactions within three years from 1 percent last year, Feng said. By contrast, trades through dark pools last year in the U.S. accounted for 10 percent of the total, and 4 percent in Europe, he estimates.
“It’s highly unlikely we’re going to see a big change in the regulatory environment in Asia in the near future,” Sanger said. “Most of the countries in Asia are still understandably very protective of their primary exchanges.”
Ronald Arculli, chairman of Hong Kong Exchanges & Clearing Ltd., has criticized dark pools for their lack of transparency. Financial markets face a “systemic risk” because of the lack of transparency, Arculli said on Dec. 9. The exchange said on Dec. 11 it’s not considering establishing its own dark pool.
Besides Australia, Citigroup also operates a dark pool in Hong Kong and started offering the service in Japan in June, Sanger said.
Off-exchange trading platforms will need a few years before they “take off” in Asia, Magnus Bocker, chief executive officer of Singapore Exchange Ltd., said on April 16. The establishment of dark pools must be done in “parallel to other developments” for it to be successful, he said.
Bocker said his exchange is working to improve liquidity in the derivatives markets, increase the efficiency of its securities borrowing and lending system, plus broaden distribution networks by attracting more traders.
Chi-East, a pan-Asian dark pool joint venture between Singapore Exchange Ltd. and Chi-X Global Inc., is due to start operations this year.
The platform chose LCH.Clearnet Group Ltd., Europe’s largest clearing house, to process trades in Hong Kong, Japanese and Australian securities, LCH said on Nov. 18. Trades in Singapore equities will be cleared by the city’s bourse.
“The presence of more market participants, including operators of block crossing networks, will improve liquidity and therefore benefit investors and the Singapore market,” Singapore Exchange said in an e-mailed statement.
Exchanges worldwide have been building new platforms in response to competition from alternative trading systems. Since starting in May 2009, London Stock Exchange Group Plc Chief Executive Officer Xavier Rolet has been trying to diversify the bourse’s business and stem its loss of market share to multilateral trading facilities such as Bats Europe and Chi-X Europe Ltd.
The LSE completed the merger of its Baikal dark pool unit with Turquoise in February, creating a new pan-European trading venture. The Tokyo Stock Exchange introduced a faster trading system in January amid growing competition. The Singapore Exchange said in June it will roll out a new system next year that will become the world’s fastest trading engine.
Citigroup provides electronic trading platforms to its clients in more than 30 markets globally, according to Ben Valentine, head of electronic execution sales trading. In Asia, such services are available to clients in Australia, Hong Kong, India, Japan, Malaysia, South Korea, New Zealand, Singapore and Taiwan, he said.
Electronic services will also be offered to clients in Indonesia this quarter, said Ian Smith, head of electronic execution products for Asia Pacific at Citigroup. Smith joined the bank this month from Credit Suisse Group AG, where he worked in the past 10 years and was last head of advanced execution products in the region.