The demand for shared trading infrastructures would rise as high frequency trading (HFT) across Asia expanded by a third over the next few years and algo trading grew by almost three-quarters, according to Eugen Tjong, head of enterprise solutions real-time for Asia Pacific at Thomson Reuters.
Tjong saw HFT trading rising “from its current level of about 15% of volumes to about 20% by 2015”.
He also anticipated algorithmic trading in Asia would increase from 18% to 31%, direct market access from 16% to 28% and smart order routing from 9% to 16% in the same timeframe.
This growth would largely be driven by markets such as Singapore, Taiwan, Australia, South Korea, China and India ramping up their e-trading environments to catch up with the current leader, Japan, predicted Tjong. This would leave a second tier of Indonesia, Thailand, Malaysia and Pakistan still to take the electronic plunge.
However, the burden of regulation falling on most developed markets as securities regulators globally addressed issues relating to market stability, dark pools, high frequency traders and their impact on price discovery and fair access, meant the relative attraction of emerging markets as trading destinations had been heightened in the last three years, believed Tjong.
“The potential for growth [in Asia] is limited by the sheer number of trading venues and the cost of setting up operations in each. The distances between the four major Asia-Pacific trading centres – Tokyo, Hong Kong, Singapore and Sydney – make fibre-optic interconnectivity challenging and expensive,” said Tjong. “This introduces more system latency than between their North American counterparts. The distance from Tokyo to Hong Kong, for example, is 2.5 times the distance from New York to Chicago. In addition, Asian centres must be able to bridge not only land, but also connect over great distances of water.”
With an increasingly challenging electronic trading landscape developing, many financial institutions were reluctant to build their own infrastructure, suggested Tjong.
“They are instead seeking platforms that can deliver – preferably through a single connection – the infrastructure, technology and content to support all of their business processes from end-to-end. In particular, they need rich, real-time and reference data, enabling them to automate their decision-making and risk-management process,” said Tjong.
Shared requirements
Any shared infrastructure would need to provide a compelling proposition for all financial firms, no matter where they were geographically or in the value chain, according to Tjong.
Firstly, platforms would need to offer the ability to trade fast – with data dissemination for local markets of less than four milliseconds – and the ability to connect to as many markets as possible and integrate with virtually any application.
Data feeds would have to meet the challenges of massive growth in electronic and algorithmic trading and the accompanying rise in data volumes.
Firms would increasingly seek hosting as a cost-effective way of both trading in existing markets and accessing new and relatively uncharted ones. Buy-side firms are particularly focused on gaining high-speed access to markets, lowering their total cost of ownership and ensuring rapid entry into new geographies when they decide to launch new funds or refocus existing investment portfolios.
Platforms should not only be able to rapidly deploy services but also deliver new value propositions. The concept of shared infrastructure implied platform providers would not just offer their own suite of services but also provide the flexibility and freedom to package both their own and third-party assets to create best-in-class, added-value solutions.
Lastly, shared infrastructure was not only about finding venues and trading them. The best shared infrastructures would have the scale and power to bring communities of people and firms together – and even create new ones. These communities would enable brokers, buy-side firms and service providers to connect, deliver rich content, and trade in a secure network of connected environments which might offer more opportunities than they can currently imagine.