The Singapore Stock Exchange (SGX) announced a dark pool trading platform in alliance with Chi-X back in August, but it has only recently attracted outspoken criticism. The chairman of the Hong Kong stock exchange, Ronald Arculli, has condemned the move in a speech to the territory’s Foreign Correspondents’ Club. Dark pools, he said, present a ‘systematic risk’ to global finance, but should we read ‘global finance’ to mean Hong Kong’s share of regional trading?
Dark pools enable the trading of large amounts of shares in secret to reduce market impact. Arculli fears they will lead to a two-tiered market, where dark-pool participants have exclusive and beneficial access to information on trades. Many critics also accuse dark pool trading of being too lightly regulated.
SGX are keen to defend their new dark pool, known as Chi-East. Carolyn Lim of SGX stresses that the platform is adequately regulated. As for two tiers, it will be ‘a win for regional markets because it will boost overall liquidity, attract new players and improve the trading environment,’ she tells IR magazine in an email.
However, some evidence suggests critics have over exaggerated the market importance of dark pools. A recent study by the Financial Services Authority suggests that only 1.25 percent of trading in Europe takes place under these conditions. Before regulatory questions arise, Chi-East’s popularity with regional investors and traders will determine whether Arculli’s fears are justified.