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ThatÆs the grim assessment of Liquidnet managing director, David Klinger, who is overseeing the opening of the firmÆs fourth regional office, in Singapore.
He says trading in the past eight weeks has been marked by declining average order sizes, as stock values fall, and a lopsided desire to sell versus few bids. Although the buy/sell imbalance nearly levelled out during one trading day earlier this week, the demand to sell has picked up again.
Klinger says these flows are a lead indicator of investor sentiment; for now, there is no sign of support for Asian equities among institutional money managers.
But Liquidnet, an alternative electronic trading venue, is finding opportunity in Asia, because it offers fund managers a way to trade blocks of illiquid securities anonymously. It also benefits from days of high trading activity.
The Singapore business, once it opens, is expected to complement equities trading on the Singapore Stock Exchange, which Klinger describes as good at price discovery but less efficient at ævolume discoveryÆ. In other words, Liquidnet will use SGX pricing but match institutional trading desks looking to move stocks in large amounts, which is particularly hard to do with small cap stocks and medium cap stocks.
Money managers are increasingly looking to offload these less-liquid stocks because of ongoing forced redemptions. Initially buy-side traders that face redemption calls will first trade the most liquid parts of their portfolio, but increasingly must try to sell the more difficult stuff. ThatÆs where Liquidnet and competitors such as Instinet or the dark pools of brokerages see an opportunity.
Liquidnet already has offices in Tokyo, Hong Kong and Sydney. Singapore is a smaller operation, reflecting the marketÆs size. Liquidnet already trades Singapore equities: during the third quarter, the average value of a trade in Singapore equities on Liquidnet was S$1.8 million ($1.2 million).
Greg Henry has transferred from the firmÆs New York office to head the Singapore office, which will concentrate on servicing local clients and grow the business of trading in Singapore equities. Henry, who reports to Hong Kong-based Klinger, previously ran international equities for US clients. He has also worked at ITG and Instinet.
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