Dark Pool No Longer for Individual Investors

On 15 May 2015, SFC released consultation conclusions on proposals to enhance and unify the regulatory regime for alternative liquidity pools (ALPs). ALPs are commonly known as "dark pools". Unlike “lit” trading venues, they do not provide for pre-trade price and volume transparency.

Highlights of the enhanced regime include:

• no individual investors (including individual professional investors and their wholly owned investment holding corporations) will be allowed to use ALPs;
• client facilitation orders will be treated as proprietary orders, which will have a lower execution priority in ALPs than agency orders; and
• there will be no mandatory "opt-in" requirement before client orders can be routed to ALPs, but ALP operators should permit their clients to opt out of having their orders transacted in ALPs. [This requirement is obviously originated from the previous disciplinary action against HSBC Securities.]

The new regime, which involves amendments to the Code of Conduct, will come into effect on 1 Dec 2015. This is a new game plan.