Saxo Capital Markets, a trading platform provider and wholly-owned subsidiary of Denmark's Saxo Bank, has opened an office in Hong Kong in response to growing opportunities offered by increasing institutional flows to the region as well as demand for white-label solutions from financial institutions.
Kevan Hull, APAC head of business development and marketing at Saxo Capital Markets, said, “We are expanding in growth markets of Asia. The fact that many hedge funds and asset managers are looking to come to Hong Kong makes sense for us to be here. Apart from it being the gateway to China, we are also interested in the Hong Kong market itself.”
The Hong Kong office is Saxo's fourth in Asia Pacific, after Singapore, Japan and Australia. “Asia is fragmented with regards to regulations and different product offerings. We have to research it pretty well and decide where to open our offices. Hong Kong was very high up on our priorities,” Hull adds.
Saxo's multi-asset trading platform, SaxoTrader, caters for both institutional and retail investors. Clients can trade over 13,000 stocks on 22 exchanges, 160 currency crosses and more than 40 FX options.
The firm is particularly optimistic about growth opportunities in Hong Kong's FX market. According to the Bank for International Settlement's Quarterly Review, daily average FX market turnover reached US$4 trillion in 2010, up 20% from the previous year. The growth in Hong Kong was even more significant. Daily direct customer trading of spot FX transactions in Hong Kong grew 86% from US$5.4 billion in 2007 to US$10.1 billion in 2010, making Hong Kong the sixth largest market globally in terms of daily FX turnover.
But only 50% of global FX trading is being executed electronically. Hull expects more institutional and retail investors, both in Hong Kong and globally, to switch to electronic trading due to reduced transaction costs and increased market liquidity.
“Market uncertainties over the past two years have created upsides in non-equity asset classes including forex and commodities,” according to Francis Lee, managing director for Saxo In Hong Kong. “We are seeing a trend for Hong Kong retail investors, who have traditionally traded equities and warrants, moving towards multi-asset investing. The change in investment mentality will present opportunities for Saxo.”
White labelling is also a significant part of Saxo's business. This involves customising and branding of its online trading platform for financial institutions and brokers who have retail online trading businesses. Saxo's white label clients include CitiFX, Barclays Stockholders and BWC Forex. Citibank's CitiFX Pro was first launched in the US in March 2008, followed by Hong Kong in September 2008 and other Asian markets subsequently.
“We are a liquidity provider. We stream prices for our clients from a number of major tier-one banks on the foreign exchange side. For the white-label clients, we will tailor the platform to look like theirs. So it will have their brand, but our technology will be behind it. We have a number of significant white-label clients in Australia,” Hull noted.
The Asia-Pacific region already accounts for a third of the group's revenue and new business. The different rules and regulations across Asian markets mean its platform has to be quickly adaptable to these changes.
“Contracts for difference are available on our platform, but they are not allowed in Hong Kong. They are allowed in Australia. So we have variations in the system for different markets,” he added.
Hull is optimistic that the growth of alternative liquidity venues in the Asia-Pacific region could present further opportunities for the firm in future. “We are always looking at different alternative liquidity venues. Australia is just breaking the monopoly of the Australian Securities Exchange and Singapore is also interested in alternative liquidity venues. Obviously there are regulatory concerns about alternative liquidity venues, but as a liquidity provider, this is something we'd like to look at in markets where alternative liquidity venues are viewed positively,” said Hull.