Instinet, an agency broker and trading platform provider, has struck a reciprocal liquidity agreement between its Asia-Pacific broker-dealer units and JP Morgan, reflecting a growing trend towards such tie-ups.
The aim of the deal is to broaden the Asian liquidity available to each firm’s institutional clients. It is also the latest step in Instinet’s effort to connect to all “meaningful” pools of liquidity in the region, says Joel Hurewitz, the firm’s Asia head of product strategy based in Hong Kong.
Since 2010 Instinet has been pursuing new ways for its clients to trade the rapidly fragmenting Asia-Pacific equity markets efficiently, he adds.
Under the deal, Instinet clients can use the firm’s Nighthawk liquidity-aggregation algorithm to access JPM-X in Hong Kong, Japan and Australia, while JP Morgan clients will be able to access Instinet BLX Australia, CBX Hong Kong and CBX Japan.
Instinet released Nighthawk in Asia last year and has several other liquidity-sharing agreements, including with Tora Crosspoint, ITG’s Posit Marketplace, Nomura’s NX and Credit Suisse’s Crossfinder. Instinet is also one of several brokers to have signed up to access the Chi-East regional dark pool based in Singapore.
Another trading venue operator, Liquidnet, is pursuing a strategy of signing liquidity-sharing agreements with exchanges, such as the one it has with Six Swiss Exchange.
Instinet’s liquidity aggregator now links to 22 different specific pools in the region, from rival agency brokers to internal broker-dealer engines to exchange-run venues, notes Glenn Lesko, the firm’s Asia CEO based in Hong Kong.
Asked whether there are more such agreements in the pipeline, he says: “As pools are created, our clients would like us to connect to all of them. But that depends on the policies of different companies. Some don’t like to make joint announcements, while others are still mulling whether to allow external access to their venues.”
Still, new pools will be set up in Asia, and Instinet will aim to connect to them, says Lesko. There are fewer independent pools in Asia than there are in Europe, he notes – Chi-X and Chi-East have arrived in the region, but not Bats, for example. So there’s a lot of potential for more of these types of venues to be established.
What’s more, there are dominant brokers in certain markets in Asia that don’t have dark pools but would like to, says Lesko, pointing to the large banks in China and HSBC in Hong Kong.
HSBC wants to set up a dark pool, but is facing regulatory obstacles over getting it approved by the Securities and Futures Commission; it reportedly put these plans on ice in August last year. Some suggest it is likely to be that retail brokerage members of Hong Kong Exchanges and Clearing have formed strong opposition to an HSBC-run pool.
Lesko notes that Japan, Singapore and Australia are big institutional markets, but that Hong Kong has a particularly big proportion of high-net-worth investors. As a result, he says, a dark pool catering to the retail market would be very welcome.