The entry into Thailand of the alternative trading network Liquidnet has prompted the Stock Exchange of Thailand to make rapid upgrades to its trading system and improve competitiveness to protect its market share.
Pakorn: ATSs have big advantages
Liquidnet was founded in 2001 as a wholesale electronic marketplace where institutional investors could trade huge lots of equities.
It links with nearly 1,000 asset managers and management firms worldwide whose assets, trading and investment are together worth US$12 trillion.
It has developed its alternative trading system (ATS) with full support of the US regulator.
US authorities promote free competition among stock exchanges through the Regulation National Market System to serve the legitimacy of shares trading outside a country's conventional stock exchange.
Executive vice-president Pakorn Peetathawatchai said the SET has had concerns since the entry of the ATS in April, as it has advantages over major bourses.
For example, investors are not required to disclose their transactions to regulators and can avoid the cost of multiple currency trading.
Above all, they need not pay local brokerage fees.
"The ATS has tried to eat into the market share of conventional bourses worldwide, given its advantages in terms of competitive service, efficient trading with quick matching and big transaction trading with no requirement for investors to disclose their transactions publicly," said Mr Pakorn.
He said the SET must keep improving its efficiency, as Liquidnet is not alone _ there are about 50 companies providing alternative share trading venues to investors.
"These marketplaces, also known as 'dark pools' or 'dark venues', have succeeded in most major markets, even developed ones such as the London Stock Exchange (LSE), Nasdaq and the Swiss Exchange. Dark pools' market share has a growth rate that far outstrips the conventional bourses across the world," said Mr Pakorn.
About half the stocks on the LSE have been trading on an ATS.
Elsewhere in Europe, ATSs have a presence under a different name _ multilateral trading facilities.
For the SET, the only way to maintain its market share in trading services is by improving its system in terms of speed even though its system is already fast.
The SET allows trading orders to be placed at speeds 10 times those of Japanese exchanges.
A fast multiple currency trading system should also be in place early next year.
The SET is also considering easing rules and regulations for long-term trading, said Mr Pakorn.
Mr Pakorn said since starting to offer its services in Thailand in April, Liquidnet has gained a lot of trading orders from foreign investors, particularly institutional investors.
Also, billionaires whose assets are in foreign banks will likely enjoy the lower cost of foreign exchanges when placing trading orders through an ATS.
So far, some of the SET50 stocks are traded on the ATS by institutional investors.
Currently, Liquidnet operates in 42 markets on five continents.
In Asia-Pacific, Liquidnet entered the Philippines last year, Indonesia in 2011 and Malaysia in 2010 and is also in Australia, New Zealand, Hong Kong, Japan, South Korea and Singapore.