Is dark pool trading really the way to go?

While it is commendable of the Singapore Exchange (SGX) to search for new sources of liquidity, I question if dark pool trading is the way to go ("SGX to open dark pool in bond trading push"; last Thursday).

Liquidnet Holdings may well be a leader in this line, but that does not mean SGX should follow suit.

Surely, the fact that the dark pool business has come under the regulatory scrutiny of the European Union as well as the United States' Securities and Exchange Commission should be of interest to SGX, which also has a regulatory role here.

The secrecy surrounding trades on such platforms could lead to abuses.

When former SGX chief executive Magnus Bocker indicated he was mulling over dark pools and high-frequency trading systems, I asked him why he was keen to introduce these here, since he must have been aware of the concerns.

He explained that SGX's version would have built-in controls.

SGX later set up a joint venture with Nomura's electronic trading platform provider, Chi-X. This tie-up was eventually terminated ("Poor volumes, so SGX shutting 'dark pool' "; May 11, 2012).

Hence, I am puzzled by the renewed interest in setting up a dark pool.

Denis Distant

A version of this article appeared in the print edition of The Straits Times on November 24, 2015, with the headline 'Is dark pool trading really the way to go?'. Print Edition | Subscribe