Electronic-trading firm Instinet believes inter-connectivity among alternative trading venues is set to deepen liquidity throughout Asia-Pacific after announcing a deal to share client access with Tora in Japan.
In a move that will be made public today, the agency-only brokerage has unveiled what it calls a “reciprocal liquidity access agreement” with e-trading platform and Asian liquidity provider Tora.
The deal will see Instinet’s Japanese clients gain access to Tora Crosspoint, an off-exchange liquidity venue launched in Japan this February, while Tora clients gain access to Instinet’s crossing platform CBX Asia in Japan.
Tora already aggregates liquidity from multiple venues in Asia, including broker-crossing engines as well as third-party pools. Credit Suisse’s Crossfinder, Japannext and Kabu.com have all recently linked to Tora Crosspoint.
Joel Hurewitz, head of sales, broker dealer and liquidity at Instinet Pacific Services, says he expects this type of activity to grow in Asia, as it has done in Europe and the US.
“There has been an obvious progression in this field,” says Hurewitz, who has been selling direct market access (DMA), algorithms, programs and dark pools for the past 10 years. “In Europe and the US we connect to 10 to 15 pools using this reciprocal liquidity aggregation. It just makes sense, so it is going to happen out here.”
He argues creating connections among venues provides brokers with more liquidity, while allowing buy-side traders to access multiple destinations easily. Instinet’s goal is to aggregate as much of Asian equities liquidity as possible, whether it’s found on an exchange, an alternative venue or a broker’s dark pool.
But it’s not always easy.
Hurewitz suggests that part of the reason why some brokers don’t want to enter into reciprocal arrangements in Asia is because a lot of broker pools are not regulated in markets such as Hong Kong and they don’t want to be seen as operating a ‘venue’.
“Their view is that as soon as they give other brokers like Instinet access to their dark pool, the regulators may see it as a venue as opposed to an internal crossing pool,” he says. “More brokers, however, are licensing their dark pools, which gets around this issue.”
He adds that further liquidity aggregation announcements are on the way. “We are speaking to 10 brokers in Asia and we are in the process of certifying four here in Hong Kong,” he adds. “I would say the progression [in extending such deals] will be Japan, Hong Kong, Australia and then Singapore.”
Tora COO Ian Lombard adds that the hunt for liquidity and best execution are the key challenges facing the buy-side in Asia.
“The simple fact is that the buy-side doesn’t have the resources, or desire, to sift through venues and piece together liquidity themselves,” he says. “By offering CBX Asia in Japan as a destination we’re offering another new solution to maximise execution quality. Working with other providers like Instinet, who share our philosophy, is the next step in Asia.”
Instinet clients will use the firm’s Nighthawk liquidity aggregation algorithm, which allows a single order to seek best prices across dark pools, to also access Tora Crosspoint.
“[Nighthawk] makes Asia’s increasingly complex, multi-venue marketplaces much easier to manage,” Hurewitz says.