Strong Demand for Dark Pools in Asia Boosts Liquidnet Volumes
There has been a growing demand in Asia for dark pools, anonymous trading platforms used by institutional investors. One of those operators, Liquidnet, says the amount traded in Asia surged 32 percent year on year to a record $4.95 billion in the first quarter. The company says it's seen substantial growth in the region since it began operations in Asia three years ago.
Lee Porter, Asia Managing Director at Liquidnet told CNBC the biggest challenge facing institutional traders was "sourcing large blocs of shares in a safe and efficient venue." According to the firm, the average size of a trade in Asia Pacific on Liquidnet in the first quarter was $1.4 million, 118 times the size of the average trades on the Hong Kong stock exchange.
"The issue that the institutional investor has is if they have a very large order, if they are placing that into the public market, that's very likely to have a very large impact on the price they are going to execute, so they have to use and look for other alternatives to transact," he explained.
He also rebuffed the notion that transparency was an issue for dark pools. "The price that is derived in a dark pool is largely driven from the public exchange. In Liquidnet, 98 or 99 percent of our transactions happen between the current bid and offer. So it's very unlikely that the prices themselves that are being transacted at are different from what you're finding in the current exchange."
As traditional stock exchanges look to broaden their product base, Porter said this would lead to opportunities for dark pools to provide a complementary role.
"Where we are about volume discovery, they're about price formation. They are very complementary types of liquidity."