Liquidnet launches Philippines dark pools

Liquidnet, the US dark pool trading systems operator, expanded its block trading system to its ninth market in Asia with the launch of trading in Philippines stocks.

The move on Wednesday is a sign that dark pools, which allow the matching of large blocks of shares, are growing in Asia.

Their use is gradually starting to move beyond Asia’s three most developed markets of Japan, Australia and Hong Kong as US and European institutional investors want to be able to trade Asian shares in similar ways – electronically – to how they trade in the west.

It comes only weeks after US broker ITG launched a similar service in Indonesia.

Dark pools allow the trading of large blocks of shares between two parties without prices being advertised publicly before a deal is struck.

They are popular among institutional investors – including asset managers and pension funds – because this allows them to get large orders done without having to go on to an exchange where average order sizes are smaller.

Traders placing large orders on exchanges, where prices are posted in advance of deals being struck, run the risk that this signals that they are a large buyer or seller, prompting the market to move against them and jeopardising the order.

In the second quarter, the average size of orders on Indonesian and Philippine exchanges was $3,279 and $6,072, respectively. The average order size on Liquidnet is about $1m.

Lee Porter, managing director of Liquidnet Asia, said the Philippine market was similar to Indonesia’s, which explained the company’s move into the market.

“Indonesia is probably one of the most difficult markets to trade in Asia because of the [wide] spreads and lack of liquidity,” he said. “The Philippines has similar issues.”

Spreads in Indonesia were typically about 80 basis points compared with 20-25bp in Hong Kong and Australia.

In addition, 50-60 per cent of trading flow into Indonesian equities comes from trading desks based in Asia – mostly Hong Kong and Singapore – with the rest coming from the US and Europe.

Mr Porter said Liquidnet was “taking a very close look” at entering India, which has attracted significant interest from foreign trading companies in recent months, including some large US market-making companies.

“That’s one that’s high on the list for our customers,” Mr Porter said. “We feel that we may have a solution but there’s still some work to be done.”

Liquidnet has more than 230 members in Asia-Pacific connected to trade Asia equities, out of a total globally of about 700 members trading all equities.