The proliferation of trading venues globally has exerted pressures on exchanges and resulted in a wave of consolidation. In Asia, technological advances will be a major catalyst for the introduction of competition that is expected to transform exchanges' operating models, said Ronald Gould, managing director of the Promontory Financial Group and previously chief executive of Chi-X Asia Pacific at the 9th Asia Pacific Trading Summit of the FIX Protocol Ltd held on 25 May in Hong Kong.
“We're going to see the emergence of some pan-Asian clearing possibilities over the next few years and that will put pressure on the existing national clearing models just as the creation of alternative venues will put pressure on the existing national champion exchange models,” Gould said.
Promontory Financial Group acts as an advisor to governments and financial institutions around the world.
Noting the wave of exchanges mergers and takeovers in Europe in recent years, from the London Stock Exchange's acquisition of Borsa Italiana, Turquoise and – potentially – TMX Group to BATS Global Markets' recently completed purchase of Chi-X Europe, Gould observed, “Fragmentation has been one of the biggest regulatory concerns and as we look at how the industry responds to regulations, one of the things that we're going to see are ways that we can reduce the negative impact of fragmentation and gain access to that larger liquidity pool that investors want unfettered access to.”
In a speech titled, ”The Exchange Space – Stasis, Dramatic Change or Morphing to New Models', Gould emphasised the challenges of connecting to multiple sources of liquidity.
“Providing an environment that maximises connectivity for all of the different participant groups and that connectivity being provided by various new types of vendor solutions. That's a relatively new element in the picture for technology change, something that can have an increasing impact on the future relative to some of the other technology changes that we've already seen,” he added.
The importance of providing fast and effective access to liquidity was also reflected in presentations made by representatives of the Singapore Exchange (SGX) and the Australian Securities Exchange (ASX).
The collapse of the proposed SGX-ASX merger has left the two exchanges looking to develop other sources of growth within their own markets while monitoring other options in terms of regional alliances and merger and acquisitions.
SGX is focused on four key initiatives for 2011, including the launch of a new data centre and co-location facility in April, the impending launch of its new trading platform Reach on 15 August as well as hubs in Tokyo, London, Chicago and New York to enable customers in those locations to connect to SGX.
“Reach will provide the lowest latency order response time in the world. We're looking at less than 90 microseconds,” said Bob Caisley, SGX's chief information officer and executive vice president in a video interview.
SGX has also proposed to implement a number of enhanced safeguards, such as improved circuit breakers, and the exchange is also looking to implement continuous all-day trading in the cash markets in the second quarter subject to regulatory approval.
In Australia, the ASX is entering a new era, with the Australian Securities and Investments Commission close to finalising new equity market rules that will have to be submitted for ministerial approval before being implemented over the next 6-9 months.
“There will be very significant regulatory changes starting from June. Its essentially the RegNMS and MIFID of Australia; it's a model in between,” said Richard Murphy, ASX's general manager equity markets, in a video interview.
“These are probably the biggest regulatory changes affecting trading in Australia … as significant as moving off the trading floor or amalgamation of the state exchanges,” he added.
ASX is also due to launch PureMatch, an alternative platform that will provide arbitrage opportunities for the top 200 equities and exchange-traded funds listed on ASX. The exchange is also building a new co-location centre in response to growing market demand. “We introduced co-location two years ago but we've run out of space and we need more space, more power,” Murphy said.
“We're keen on high-frequency trading. We think it plays an important role in the modern market: preserving liquidity. We are very aware of not heading down the path of all high-frequency trading. It's the investors who invest in IPOs and rights issue, not the high-frequency traders. So it has to be in balance with the rest of the market.” Murphy added.
Author: Jill Wong