UPDATE 1-Hong Kong to review rules around alternative liquidity pools

Thu Feb 27, 2014 5:46am EST

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HONG KONG Feb 27 (Reuters) - Hong Kong will launch a consultation period concerning future regulation of dark pool trading networks, the territory's securities regulator said on Thursday.

Formally known as alternative liquidity pools (ALPs), dark pools are anonymous trading platforms. Dark pools do not publish bids or offers on shares, allowing large investors to trade big blocks without having news of their orders move the price.

Hong Kong's Securities and Futures Commission (SFC) said it was proposing to enhance and standardise the regulatory obligations imposed on Hong Kong licensed corporations that operate the platforms.

Authorities in Asia have for the last several years worked on enhancing regulation of both high frequency trading networks and dark pools, keen to avoid the trading glitches and "flash crashes" elsewhere that have been attributed to the rapid rise of algorithmic trading.

The SFC said in its announcement that a two-month consultation period would examine several proposals, including restricting access to ALPs to institutional investors, enhancing the level of disclosure and introducing more record keeping and reporting requirements.

"The growth in the number of ALPs has catalysed global recognition that these systems must be appropriately operated to protect client interests and preserve market integrity," SFC CEO Ashley Alder said in the statement.

The European Union reached an outline deal last November that took aim at dark pool trading by placing a cap on certain trades.

(Reporting by Michael Flaherty; Editing by Jacqueline Wong)

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