ITG launches Australia's first aggregated dark pool
Investment Technology Group (ITG) has launched its liquidity aggregator, POSIT Marketplace, in Australia in a move that will significantly reduce trading costs for buy-side traders and enable them to trade more efficiently, says Michael Corcoran, head of sales and trading, Asia Pacific, at the agency broker and technology provider.
At launch, POSIT Marketplace will connect four dark liquidity destinations, including ITG's own POSIT continuous-crossing pool. More than 100 institutional buy-side clients have connected to POSIT Marketplace. The Australian Securities Exchange's (ASX) own dark order type will also be added as a destination shortly.
“In terms of the reduction in trading costs in Australia, we expect something in line with what we're seeing in Hong Kong, which is 10 basis points (bps) on average,” says Corcoran.
“The Australian trading landscape is undergoing a period of significant change. As new trading venues are introduced, a way to reach them all simply and efficiently needs to develop in parallel,” he adds.
POSIT Marketplace year-to-date crossing rates are 10-12% for ITG's large-volume algorithmic users. Available in global markets across the US and Europe and launched in Hong Kong in March 2010, POSIT Marketplace aims to cross orders at the mid-point or better, saving half the bid/offer spread on each trade.
“On the trades executed within POSIT Marketplace, there's immediate cost savings because you're crossing at the mid-point so you're saving part of the spread, and there's additional cost savings through increased efficiency around both market impact and delay costs,” adds Clare Rowsell, head of client relationship management, Asia Pacific, ITG.
With best execution gaining prominence as a regulatory issue and investors adopting tools to improve trading efficiency, lowering trading costs has become vitally important to fund performance in Australia. An ITG peer analysis of Australian trading costs for 2009 showed a differential of US$15 million per annum – or 0.75% of fund value – between a well-executed and a poorly-executed fund. For the same fund with US$2 billion in assets under management and 75% annual turnover, a poorly-executed fund would incur an average cost of 80 bps per trade or US$24 million in total cost, while a well-executed fund would incur average cost of 55 bps per trade or US$9 million in total cost. The annualised cost savings can also make a big difference in peer group ranking. Analysing Australian funds over a three-year performance, ITG found that improving execution performance from the lower end (70-80 bps) to the upper end (40-30 bps) can move a fund over a decile up in fund rankings.
POSIT Marketplace's introduction to Australia is timely given the prospect of increasing fragmentation, the introduction of new order types and fast-changing market dynamics as seen in the proposed merger of the Singapore Exchange (SGX) and ASX.
Corcoran asserts that alternative trading venues are finally starting to take off across the Asia-Pacific region. He expects more liquidity venues to develop in Australia and that these will include direct competitors to the exchanges as well as more crossing networks and other off-exchange venues with market licences for new venues expected to be granted in 2011. He also notes the prospects for development of a formal regulatory structure around best execution in Australia.
“Markets are changing in Asia and the SGX/ASX merger reflects the changing dynamics of the marketplace. It doesn't change our view of competition in Australia. There is competition at many levels already in Australia where there has been a growth of dark pools and fragmentation as a result. Fragmentation brings its own challenge: how does one access multiple venues? And that's what POSIT Marketplace allows the buy-side to do, access multiple venues through one access point.”