Hong Kong's Securities and Futures Commission has decided to restrict user access to "alternative liquidity pools," private alternative trading systems or platforms, to institutional investors. The effective date is 1st December.

The regulator's decision is part of the regulatory fallout from a consultative exercise. The idea, according to the SFC, is to "enhance and unify the regulatory regime" for alternative liquidity pools. Unlike 'lit' trading venues, so-called dark pools do not provide for pre-trade price and volume transparency.

The SFC says that it is also proposing to:

• enhance the level of disclosure to users of ALPs;
• ensure "user order priority" over the proprietary orders of ALP operators and their affiliates;
• restrict the level of visibility of trading information that is available to the staff of ALP operators;  
• cease to restrict the hours of operation of ALPs;  
• allow ALPs to transact securities listed overseas as well as Hong-Kong-listed securities;
• ensure the system adequacy of ALPs by addressing issues such as system controls, reliability, capacity, security and contingency measures; and
• making risk management control, record-keeping and reporting requirements more onerous.

The public consultation ended on 25 April 2014.  The SFC received a total of 59 written submissions.  They were submitted by licensed corporations (including ALP operators), industry associations, a professional body, a statutory organization and individuals.  Of the 59 respondents, two requested that their names and comments not be published and 36 requested that their submissions be published without disclosing their names.