A provider of liquidity in the so called 'dark pools' area of the Australian market, Liquidnet believes that Australian Securities and Investments Commission (ASIC) requirements introduced on May 26 have improved efficiency in the area.
“The regulator [is] being very focused on trying to increase confidence in the price formation process on the lite market [and] on really trying to get the dark space back to doing what it was originally intended to do,” James Chatfield, head of Liquidnet Australia, told InvestorDaily.
ASIC has created three new tiers for trades below a certain threshold that require market participants to show meaningful price improvement if they are to be traded in the dark.
“What ASIC has been focused on is very much the non-block end of the spectrum, particularly trades that were not happening with price improvement,” Mr Chatfield said.
“The challenge for all regulators has been: what is the balance and where does too much dark detract from price formation?”
Liquidnet operates in the block execution side of the dark spectrum, with an average trade size of around $1.5 million.
“We are bringing degree efficiency to a practice that has always existed and that is the upstairs block trading...The Liquidnet model is that we present sizeable trading opportunities to members wherever they may be in the world,” Mr Chatfield said.
ASIC’s requirements also offer a useful example to other regional regulators, according to Liquidnet.
“[ASIC] is actually forming a high watermark in terms of the blueprint for market structure of [dark pools],” said Lee Head, Asia Pacific regional head of Liquidnet.
“The smarter [regulators] are probably going to have a good look at it and say we can learn from the benefit of their experience,” he added.
