“But what you don’t have is a common regulator across the Asia Pacific, they are still relatively ‘siloed’. I can see there will be harmonisation of regulation along the way but I would hope this happens sooner rather than later.” Alongside these changes regulators are also shining a light on how dark pools operate. In the Asian region the Australian and Securities Commission has deferred hard and fast rules but has bolstered reporting requirements for dark pool operators. Dark pools, alternative trading interviews, and algorithm trading, for example, have been evolving in the US and Europe. “We’re playing catch-up in Asia and (they) been taken up fairly quickly and that will only accelerate,” Porter says. This has focused attention on the trading part of the investment cycle, with the execution of an investment strategy, so it is both protected and can take advantage of particular market microstructures as a potential pathway to improved returns.
“While the flash crash was an unfortunate event it has also been a catalyst for more portfolio managers and CIOs to become more involved in the market microstructure and working more closely with the buy-side trader,” Liquidnet corporate strategy group member, Vlad Khandros, says. “We have always said that the buy-side trader is a fantastic source of alpha and can produce a lot more if properly leveraged.” In the past three years, Liquidnet Asia’s volumes have soared, hitting a new record in the first quarter of 2011, breaking the previous record from last quarter. Record volumes have been driven by a rapidly growing member base in the region, marked by the signing of Liquidnet Asia’s 200th member firm. Strong volumes are also fuelled by a surge in trading activity and large demand in Indonesia. Porter says Liquidnet is unique because it aggregates supply and demand for Asia Pacific equities from “members here in the region and around the globe into our institutional marketplace”. “We’re seeing substantial growth in the liquidity in the pool, providing asset managers globally with the ability to trade in the size they need in a safe and protected environment while taking more advantage of these trading opportunities,” he says. “Liquidnet provides a solution to the greatest problem facing institutional traders in Asia – sourcing large blocks of shares in a safe and efficient venue. In addressing the issue, we have helped institutions reduce their market impact costs, which ultimately benefits all of the individual investors who put their money into mutual funds and pension plans.