The Securities and Futures Commission (SFC) today released consultation conclusions on proposals to enhance and unify the regulatory regime for alternative liquidity pools (ALPs) (Note 1).
The SFC received 59 written responses from industry associations, market participants (including ALP operators), professional and statutory bodies as well as individuals during the consultation (Note 2). The respondents generally welcomed the proposals.
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.
“The enhanced regulatory regime aims to provide a level playing field for all ALP operators in Hong Kong. We have developed the regime in light of practices in major international markets and the principles published by the International Organization of Securities Commissions,” said Mr Ashley Alder, the SFC’s Chief Executive Officer.
“The SFC will closely monitor market and regulatory developments, and may propose further policy refinements and rule changes in the future to maintain an appropriate balance between market innovation and investor protection,” he added.
The new regime, which involves amendments (Note 3) to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, will come into effect on 1 December 2015.
Notes:
- ALPs are commonly known as “dark pools”. Unlike “lit” trading venues, they do not provide for pre-trade price and volume transparency.
- On 27 February 2014, the SFC began a two-month consultation concerning the regulation of ALPs. The consultation ended on 25 April 2014.
- A new Paragraph 19 and a new Schedule 8, which are set out in Appendices B and C to the Consultation Conclusions, will be added to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
