Dark pools can benefit small, mid-cap stocks in Singapore: study

Perfectly legal, dark trading - also known as"black pools","dark liquidity" and"upstairs markets" - are controversial alternative private trading platforms that allow investors to make large trades anonymously unlike in a lit exchange where traders can see a large order going through and can move the price against the investor executing the order.

Currently, there are only two dark pool operators here - LiquidNet and Credit Suisse. Both target institutional investors, and have a larger average execution size. So they do not face this problem. The study found that smaller market capitalisation stocks experience, on average, larger increases in lit liquidity than those for larger market capitalisation stocks as dark trading increases. Small market value stocks are generally less liquid than the large market value ones. Hence, any positive effect of dark trading on lit liquidity would be amplified for small market capitalisation stocks.

Jason Yates, managing director and Head of Asia Execution Services, Morgan Stanley, welcomed the report and its findings.

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