Liquidnet sees record year trading in Singapore

Singapore

LIQUIDNET, the largest "dark pool" operator in the Asia-Pacific region, is enjoying a record year trading in Singapore and the region.

Year-to-date, Liquidnet, which gives institutional investors a protected venue to make large trades without attracting price altering attention, has generated in excess of US$1.5 billion in total value of equities bought and sold, or principal traded, in the city-state. This compares to US$1.38 billion for the full year 2018.

Lee Porter, managing director for Liquidnet Asia-Pacific, told The Business Times that the Singapore numbers should be looked at in perspective. "I would not say it is lagging at all. Singapore has much lower market turnover than Hong Kong and Australia. So any Singapore numbers should be looked at through this relative lens,'' Mr Porter explained.

The firm, which is registered with the Monetary Authority of Singapore (MAS) as a Recognised Market Operator, reported in July a new half-year record with volume traded in the Asia-Pacific region increasing by 12 per cent compared to a year ago. The strong regional performance was led by Hong Kong, which rose 25 per cent year-on-year, and Australia, which grew 29 per cent.

For the full year 2018, Asia-Pacific saw an increase of more than 40 per cent in total equities trading volume to US$55 billion in principal traded. This was led by Hong Kong and Japan, which grew by over 60 per cent each. Liquidnet launched its regional wholesale business earlier in the year, and introduced a full suite of Next Gen Algos in Asia which contributed to increased volumes in 2018. In the US and Europe, the figure is US$608 billion, up 23 per cent from 2017.

Since Seth Merrin founded Liquidnet in 1999, its network has expanded beyond the US into Europe and Asia-Pacific, attracting more than 1,000 institutional investors that collectively manage US$33 trillion in equity and fixed income assets. Its network spans 46 markets across six continents and seamlessly connects institutional brokers, investment banks, exchanges, alternative trading venues, and a growing list of data and research providers.

Dark pools are popular with asset management companies, pension funds and insurance firms which need to conduct a lot of large transactions because they are cheaper and easier to carry out via electronic trading platforms. Liquidnet leverages artificial intelligence and machine learning tools to help customers generate alpha returns when managing their portfolios.

With Liquidnet having provided trading in Singapore shares for more than 10 years now, Mr Porter believes more can be done to encourage dark pools here. "A good first step would be to look at the minimum thresholds, as that is main reason brokers have not opened dark pools in Singapore,'' he suggested.

Broker-dealer-run dark pools cannot reach critical mass by targeting the sell side, and so struggle to jump over minimum crossing size hurdles of at least 50,000 units or S$150,000 in terms of value. However, this is not the case for Liquidnet as their average trade size exceeds US$1.3 million.

Mr Porter reckoned some regulation refinement could entice more dark pools here. "Singapore is a little different compared to other regional mature markets in terms of market structure. The thresholds for dark electronic trading differ from market to market,'' he said.

For example, Singapore, relative to mature markets like Hong Kong and Japan which have no minimums, has quite a high threshold of at least S$150,000 or 50,000 shares. Australia has a tiered approach based on market capitalisation - catering for both institutional and retail investors, yet not interfering with the price formation process that happens on the lit or public market.

"These rules were derived at after a detailed and lengthy consultation with market participants. There is no wrong or right answer when it comes to regulation - essentially it depends on the market structure,'' Mr Porter said.

On whether calibrating limits on block volume based on the liquidity profile or market capitalisation of individual stocks will help boost liquidity in small, mid-cap stocks in Singapore, Mr Porter said: "Our thoughts are that any enhancements to market structure that can sensibly and meaningfully improve liquidity can only be a good thing for investors and issuers alike, as long as it doesn't interfere with the price formation process. This was the very basis on how Liquidnet was formed."

Liquidnet opened its Singapore office in November 2008 amid surging interest in the region among its buy-side membership. The company started its Asian operations in late November 2007, trading Hong Kong, Singapore, Korea and Japan equities, before Australia was added in late February 2008.