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Ex-LSE Wheatley weighs in on dark pools in Asia

Securities and Futures Chief Executive Martin Wheatley (and former deputy chief executive of the LSE) did a Q&A with the WSJ this week. Where he talks about how Hong Kong tempted him away from making cabinets (and holidaying in Switerland).

But he weighs in with his view of dark pools and their introduction in Asia.

"Dark pools have got this wonderful, mysterious name around them, but they're a technological reinvention of the old fax lists that used to be sent around. Twenty-five years ago, every broker would know what its clients wanted before they executed on the exchange, and they'd fax around to a few of their favorite clients and say, "Would you be interested in these stocks?" So it's nothing new really, but obviously the technology is giving it the ability to be much more significant in markets.

I think if customers want that degree of anonymity and midpoint execution that they can achieve, then they ought to have access to it, but in a way that underpins the fabric of a central market. And one of the problems potentially is you get price distortions, possibly gaming through the systems that undermine the integrity of a central market. So the question is, how do you get the benefits of competition without fragmenting the market?

Arguably the U.S. gets closer to it through its national market system, where you do have competition between both dark and lit pools and exchanges, but it's done with a consolidated tape and it's done with access to all those dark pools. That isn't the case yet in Europe and in Asia. We're still at a relatively early stage of these entrants coming to work out how they enter the market. I think we should embrace the fact that it's a new type of service offering what customers want. Competition which raises the quality of the service and brings down costs is a good thing. But we have to try to achieve those without affecting the integrity of the price formation and information processes. I think the U.S. is probably closer to that than anywhere else," says Wheatley.

 

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Elizabeth Lumley

Elizabeth Lumley

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