Dark pools facilitate block trade execution but raise issues of transparency
Instead of restricting dark pools development, regulatory bodies have to learn how to respond to the emerging popularity of dark pools trading, and ensure compatibility with traditional exchanges. October 22, 2012 | Foo Boon PingDark pools or alternative trading systems are off-exchange trading venues that match orders from buyers and sellers. By design, they provide an efficient channel for institutional investors to deal in large blocks of shares without causing major price distortion in the marketplace. They facilitate price improvement and trade execution and bring additional liquidity to the market. However, not all dark pools are the same—there are the electronic block execution trading platforms that exist purely to match buy and sell orders for institutional investors, such as Liquidnet. There are also the internalisation engines of brokers and dealers that match execution flows from retail, institutional and even their own proprietary flows, in a way acting as mini-exchanges.Seth Merrin, chief executive officer and founder of Liquidnet, is emphatic in making the distinction between what Liquidnet does from what internalisation engines of the brokers and dealers do. “Brokers have internalisation engines and are like private exchanges. The regulators in Europe and the US are concerned that if there are 40 or 50 different kinds of private exchanges in the market this will result in less liquidity and fragment the market,” he explains. Hong Kong is regarded as having inherent advantages in terms of dark pools infrastructure. A highly mature secondary equity market gives enough liquidity to warrant the birth of dark pools trading and a demand for a high frequency, low latency trading platform is provided by a large number of institutional investors, as well as pension funds and mutual funds located in Hong Kong. This is facilitated by regulatory bodies such as the Hong Kong Exchange (HKEx) which allows unlimited trading volumes to be executed b... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Exchanges, Markets & Exchanges, Risk & Compliance, Trading & DataExchanges,Markets Exchanges,Risk & Compliance,Trading & Data, Exchanges,Markets & Exchanges,Risk & Compliance,Trading & Data, Keywords:Dark Pools, Liquidnet, Seth Merrin, HKEx, SGX, ASE, TSE, SEC Dark Pools, Liquidnet, Seth Merrin, HKEx, SGX, ASE, TSE, SEC
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