Citigroup Inc., the third-biggest US bank, says it will start so-called dark pool electronic trading in Singapore early next year to meet growing demand in Asia.

The bank is expanding its regional footprint after its off-exchange trading in Australia increased to a record A$1.5 billion ($1.8 billion) in June from about A$700 million to A$800 million a year earlier, said Paul Sanger, Citigroup’s Asia-Pacific head of execution services.

“We’ve doubled volumes in Australia in a very quiet month,” Sanger said in a telephone interview. “That’s very encouraging. We’re hoping the rest of the markets will similarly grow.”

Dark pools are trading venues that don’t display quotes publicly, helping investors minimise price fluctuations and save costs. The growth of such networks in Asia has lagged behind the US and Europe because regulators in Asia have been slow to accept the systems, John Feng, New York-based managing director of research company Greenwich Associates, said on March 9.

The portion of trades handled off public exchanges in the Asia-Pacific region is forecast to rise to 3% of transactions within three years from 1% last year, Feng said. By contrast, trades through dark pools last year in the US accounted for 10% of the total, and 4% in Europe, he estimates.

‘Very Protective’
“It’s highly unlikely we’re going to see a big change in the regulatory environment in Asia in the near future,” Sanger said. “Most of the countries in Asia are still understandably very protective of their primary exchanges.”

Ronald Arculli, chairman of Hong Kong Exchanges & Clearing, has criticised dark pools for their lack of transparency. Financial markets face a “systemic risk” because of the lack of transparency, Arculli said on Dec. 9. The exchange said on Dec. 11 it’s not considering establishing its own dark pool.

Besides Australia, Citigroup also operates a dark pool in Hong Kong and started offering the service in Japan in June, Sanger said.

Off-exchange trading platforms will need a few years before they “take off” in Asia, Magnus Bocker, chief executive officer of Singapore Exchange, said on April 16. The establishment of dark pools must be done in “parallel to other developments” for it to be successful, he said.

Bocker said his exchange is working to improve liquidity in the derivatives markets, increase the efficiency of its securities borrowing and lending system, plus broaden distribution networks by attracting more traders.

Global Platforms
Chi-East, a pan-Asian dark pool joint venture between Singapore Exchange and Chi-X Global Inc., is due to start operations this year.

The platform chose LCH.Clearnet Group, Europe’s largest clearing house, to process trades in Hong Kong, Japanese and Australian securities, LCH said on Nov 18. Trades in Singapore equities will be cleared by the city’s bourse.

Exchanges worldwide have been building new platforms in response to competition from alternative trading systems. Since starting in May 2009, London Stock Exchange Group Plc Chief Executive Officer Xavier Rolet has been trying to diversify the bourse’s business and stem its loss of market share to multilateral trading facilities such as Bats Europe and Chi-X Europe Ltd.

The LSE completed the merger of its Baikal dark pool unit with Turquoise in February, creating a new pan-European trading venture. The Tokyo Stock Exchange introduced a faster trading system in January amid growing competition. The Singapore Exchange said in June it will roll out a new system next year that will become the world’s fastest trading engine.

Indonesian Trading
Citigroup provides electronic trading platforms to its clients in more than 30 markets globally, according to Ben Valentine, head of electronic execution sales trading. In Asia, such services are available to clients in Australia, Hong Kong, India, Japan, Malaysia, South Korea, New Zealand, Singapore and Taiwan, he said.

Electronic services will also be offered to clients in Indonesia this quarter, said Ian Smith, head of electronic execution products for Asia Pacific at Citigroup. Smith joined the bank this month from Credit Suisse Group AG, where he was head of execution services for the past 10 years.

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