* Hong Kong regulator cracks down on private trading platforms
* Increased ‘dark pools’ scrutiny follows Barclays lawsuit
* Retail ban could severely curb Hong Kong dark pools (Recasts, adds context on dark pools lawsuit)
HONG KONG, May 15 (Reuters) - Hong Kong’s securities regulator said operators of off-exchange share trading platforms known as ‘dark pools’ will be barred from accepting trades from retail investors, in a move to shield those investors from risks.
Hong Kong’s Securities and Futures Commission (SFC) said on Friday the ban will come into effect from December 1 2015.
“The enhanced regulatory regime aims to provide a level playing field for all [dark pool] operators in Hong Kong,” Ashley Alder, Chief Executive of the SFC said in the regulator’s statement on Friday.
‘Dark pools’ are share trading platforms operated by broker-dealers which allow investors to buy and sell anonymously, with prices displayed after a transaction has taken place.
The new rules are the long-awaited outcome of a consultation launched in February last year, amid widening global scrutiny of off-exchange trading venues following claims they distort market pricing and disadvantage traditional investors.
“The SFC is mindful of the growing role of electronic trading in Hong Kong, and has issued recommendations broadly aimed at protecting market integrity and the interests of investors, particularly retail investors,” said Lee Porter, Asia Pacific head at alternative trading platform Liquidnet.
Although institutional investors will still be able to use dark pools, banning retail investors will remove an important part of the liquidity that allows them to function in Hong Kong.
One of the main attractions of ‘dark pools’ is privacy, as it allows investors to avoid the risk of the market learning about a trade and betting against it.
But regulators are concerned that individual investors are insufficiently aware of other risks peculiar to ‘dark pools’ and lack protection.
Last month, a U.S. judge ruled that Barclays Plc would have to face a lawsuit following allegations that it had misled clients regarding trading in its ‘dark pool’.
Reporting by Michelle Price and Lawrence White; Editing by Simon Cameron-Moore