Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The product is owned by Instinet, with Samsung Securities acting as local broker sponsor and providing clearing and settlement services as well as domestic order flow.
The engine, which covers longs and shorts, operates as a æblackboxÆ pre-market VWAP (volume weighted average price) cross, matching buyers and sellers on a daily basis at 8.30am. It is InstinetÆs ninth crossing system, and in Asia it already operates JapanCrossing and CBX Japan.
Dark pools are gradually coming to South Korea. Credit Suisse introduced its æCrossFinderÆ crossing engine there in 2007.
Implementing dark liquidity systems into AsiaÆs regional markets has to be done on a country by country basis, because each one has its own rules and regulations. In South Korea, there are minimum crossing amounts and price spread limitations. Furthermore, crossed trades in Korea need to be reported manually at the end of each day, compared, say, to Hong Kong, where trade reports are automatically generated.
"The Korean market is an expensive one in which to operate," says Christian Chan of Instinet. "This is due to its lack of anonymity, and because the market impact costs are about double that of Hong Kong and Japan, many have not traded to the degree in which they'd like. The ability to execute large blocks through KoreaCross with zero market impact should make it much more appealing to them."
Crossing engines will assist in the growth of local hedge funds, many of which operate from outside KoreaÆs borders, he says. There are currently about 30 hedge funds that are Korea-focused, with more coming soon. 260 stocks on Kospi can currently be shorted. Two years ago it was a fifth of that number.
It is far from easy to start a hedge fund in Korea, with stringent capital and reporting requirements, but there have been signs from the local authorities that the regulatory burden will be eased sometime during the course of this year.
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Hesitancy aside, institutional investors eye Australia and Japan as promising geographies for private debt investments within Asia Pacific, with Greater China and Korea on the periphery.
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