The increased rate at which electronic trading tools are being rolled out to offer greater buy-side access to the Malaysian and Indonesian markets reflect growing client demand and the gradual advancement of their domestic markets in terms of trade execution options, brokers say.
“The reason why we’re looking at both of these markets (Malaysia and Indonesia) is really in response to demand from our clients,” said Lee Porter, managing director, Asia Pacific, at Liquidnet, a buy-side crossing network. “They are being increasingly active in these markets and are looking to see if they can get the same benefits from using Liquidnet as they do in other markets in terms of reduced market impact and information leakage, and price improvement.”
Liquidnet already provides off-exchange crossing opportunities in six Asia-Pacific markets and extended its offering to include Malaysian securities on 29 November 2010. The firm intends to launch Indonesian equities trading in the next few weeks.
“There are minor nuances in each market around crossing of stocks and what have you, but these two markets are really not that different from other markets in Asia Pacific,” said Porter.
Bursa Malaysia has a domestic market capitalisation of US$286.2 billion and 959 listed companies. Active in the region since November 2007, Liquidnet launched with Hong Kong, Singaporean, Korean and Japanese stocks, adding Australian equities in February 2008 and New Zealand equities in June 2010. This year, the firm had traded US$11.31 billion in Asia-Pacific as of 1 November 2010, according to its own figures, already higher than the US$10.2 billion reported for the whole of 2009.
Porter is cautious on further expansion plans. “We haven't seen that much demand for the Philippines. It’s a very small market in the whole scheme of things. It's not really on our radar just yet. Should we get demand for that market from our clients, we would take a look at it for sure. But it's not within our immediate plans,” Lee adds.
Bursa Malaysia derivatives products were migrated onto the CME Globex electronic trading platform in September 2010, a change that enabled global traders to access Malaysian derivatives products electronically.
Société Générale added algorithms and direct market access for both Malaysia and Indonesia to its Quantitative Electronic Services product suite in the second half of 2010 and now provides electronic trading services in 11 markets across the Asia-Pacific region. In October, UBS launched its algorithmic trading platform on Bursa Malaysia, allowing the bank's clients to send their electronic orders directly to the exchange without them passing through an intermediary. Malaysia is now the ninth market in Asia-Pacific in which UBS offers direct algorithmic trading. UBS plans to continue the rollout of the platform across the region and expects to launch in Indonesia before the end of Q4 2010.
“There have been greater trading activities in Malaysia and Indonesia as well as India and China,” said Yang Xia, head of direct execution services, Asia-Pacific, UBS. “This is an opportune time for the investment community to increase their uptake of electronic trading in these markets and for major brokers such as UBS to provide more services.”
According to Rebecca Thomas, direct execution sales and marketing Asia-Pacific, UBS, technology investment by the local exchange is a key factor in brokers bringing new services to new markets. “Bursa Malaysia has upgraded its platform and is able to deal with the increasing volumes of electronic trading in terms of latency and performance. They have created the right environment for brokers to come in, link to them and offer products through their trading platform,” she said.
Andrew Levine, managing director and head of agency broker and trading systems provider ConvergEx's ADR business, says the company had set up conversion trading in Malaysia and Indonesia based on client demand. The company recently added functionality to its ADR Direct technology to enable US buy-side clients to trade ordinary shares in Indonesia and Malaysia and convert the shares into American depository receipts (ADRs) in US dollars.
“Since enabling Malaysia and Indonesia we have received new trading business. There has also been an increase in the number of available ADR programs in these markets and this has helped build ADR investor interest,” said Levine.
The platform, available via ConvergEx's ADR desk or from users' desktops, offers real-time trading and is designed to minimise market impact and reduce explicit trading costs. “In all our ADR enabled markets, we believe we are the only firm that allows our clients to trade DMA through any client front-end and to be able to see the ADR conversion component of their trade real-time through our proprietary ADR website. Our competitors require a phone call and the trade is handed off from the buy-side to the sell-side,” he said.