Chinese brokers ramp up algo use
The demand for algorithmic trading in China continues to escalate, with Nanhua Futures becoming the third brokerage in the country to team up with technology vendor Progress Software to develop its own strategies.
The firm joins CITIC and China Merchants Securities, which in November
and July, respectively, also signed up to onboard the firm’s Apama algorithmic
trading platform. The agreement with Nanhua is significant, as the firm is the
first Chinese securities house to link its onshore algos to offshore markets
via the platform.
Based in Hong Kong, Ken Chan, business director for capital
markets, Progress, notes the increasing demand for algo strategies in China,
highlighting that last year his firm saw several local platform providers
signing contracts with securities houses, as well as Progress’s own recent
deals with some of China’s largest securities firms.
Algo trading has been predicted to grow in China in recent
years, with a 2011 Celent report tipping it to hit 2.5% of securities trading
by 2013, up from just 0.6% in 2011.
“Chinese investors are getting more and more new ideas,
there is a lot of demand for algo trades from hedge funds and asset managers in
China,” says Chan. Chan notes that in particular there are increasing numbers
of hedge funds setting up in China, either coming from the US or the UK, and
some even originating locally. “It’s western thinking coming into China.
Securities firms begin thinking about new things that can do with the hedge
funds.” However, he adds that in the main, Chinese securities firms are quite
conservative and many will be waiting until algos have proven results before
they will take the leap into offering them.
The Progress software taken on by Nanhua is particularly
notable as in addition to letting it better analyse and respond to market
events, the system allows it to use its own trading algorithms to automatically
trade across multiple exchanges, so Nanhau can give its customers access to
international markets, like the Chicago Mercantile Exchange. The second notable
feature of the software is its ability to offer “white box” or customisable
strategies, which are particularly in demand from hedge funds. Chan comments
that many local providers offer black box strategies that are difficult to keep
“Nanhua adopting this platform is a big move. For doing
algos, a locally-sourced platform is a cheaper option,” he says noting many
securities houses onshore have not considered the importance of relatively more
expensive international connection. He also underlines that the Chinese
regulators are monitoring outward trade, which restricts the many of securities
firms from reaching international markets at present. Chan adds that adopting
Apama prepares Nanhua for the future, as the Chinese markets get increasingly
competitive and trading across border increases.
“We’re always looking for ways that we can add value through
diversified offerings to our clients,” says David Luo, CEO of Nanhua Futures. “[The
Apama platform] will also play a key role in helping us to gain a competitive
advantage, by allowing us to provide a unique level of access to international
markets, that our competitors aren’t able to match.”
Reporting by Harry Thompson