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Alternative trading systems: Crossing comes to Korea

In April, Instinet added Korea to the growing list of markets where it operates alternative trading systems.

KoreaCross, as the system is known, will operate as a daily blackbox pre-market crossing network, matching orders at the volume-weighted average price. Instinet launched the platform with the support of Samsung Securities, a leading Korean investment bank, which is acting as a local broker sponsor, providing clearing and settlement services as well as order flow.

KoreaCross is Instinet’s ninth alternative trading system worldwide and the third in Asia after JapanCross, a crossing network for Japanese equities and CBX Japan, a real-time matching engine.

Although still behind the US and Europe in terms of the volume being executed electronically, traders in Asia are catching up rapidly, a trend being driven by the growing influence of hedge funds in the region.

According to Greenwich Associates, hedge funds accounted for almost 40% of commissions in Asia in 2007, almost double their 22% contribution in 2006, and up from just 5% as recently as 2005. The formidable hedge fund presence is driving up trading volumes and increasing the demand for low-cost alternative execution venues.

Investment banks are also an important contributor. Consultancy Celent estimates that at some global brokerages in Hong Kong up to 40% of buy-side clients’ trading might be placed electronically.

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