Published On: Thu, Dec 2nd, 2010

Electronic Trading in Asia is Shifting to Support Institutional Business

Electronic Trading in Asia is Shifting to Support Institutional BusinessLooking past the exchange technology upgrades, alternative trading venue proliferation and the budding independent clearing businesses creeping into Asia other important and long term activities have recently occurred of all places in Hong Kong where exchange competition isn’t expected any time soon and high frictional costs deter institutions in fact.

Last week, however, we saw the launch of an Independent Research Association and a Trading Laboratory built by the Chinese University of Hong Kong (CUHK). Perhaps taken individually and without the backdrop of this last year’s busy overhaul of Asia’s electronic trading industry structure these would be minor or even trite developments but when taken altogether signal a deeper, longer term shift to support professional institutional trading in Asia.

The Asian Association of Independent Research Providers (ASIAIRP), the budding trade body for Asia’s independent investment research industry, held their inaugural event last week at a well attended luncheon in Hong Kong. Both the Co-Chairs of the Body, Lucy Carmody Executive Director of Responsible Research and Edward Stockreisser Head of Asia Pacific at Lombard Street Research, among others, were on hand to raise awareness of this niche segment of electronic trading.

They held two discussions. The first on the importance of independent research and the notion of best execution and the second was an economic debate on savings and consumption in Asia. The first discussion was particularly relevant to which concerns itself with electronic trading in Asia.

The mandate of ASIAIRP is to raise awareness that research should be independent from selling brokerage services, to promote that quality, impartial investment research isn’t free, support the use of commission sharing agreements (CSAs) as a viable method of payment for research, encourage investors and their beneficiaries to ask how their fund fees are being used and to be a voice for improving the structure and transparency of Asia’s regulatory regimes for independent research firms.

With fragmentation accelerating in Asia, growing demand for the accompanying smart order routing critical for finding liquidity and the best price for clients pressure is building on formalizing best execution regulations in Asia. This includes consolidated ticker tape and the notion of a National Best Bid and Offer but also includes unbundling and the clear and transparent use of commission sharing agreements.

ASIAIRP’s launch is well timed and represents yet another small but progressive step for Asia’s institutional community.

Another interesting development was the Faculty of Business Administration at The Chinese University of Hong Kong (CUHK) unveiling their world-class finance trading laboratory last week. The grand opening saw many industry leaders including Professor K.C. Chan, Secretary for Financial Services and the Treasury of the HKSAR Government. The project sponsor Ralph van Put, Adjunct Professor of CUHK and CEO Asia Pacific of All Options was also their for the ribbon cutting ceremony.

The facility boasts 53 computers, is equipped with Bloomberg and Reuters terminals and supported by real-time data feeds from all major stock exchanges, including the Stock Exchange of Hong Kong, the Singapore Exchange, the Korea Exchange, the Osaka Securities Exchange, the New York Stock Exchange and the European Exchanges. Students will be trained by professional traders to experience real market trading environments and understand how to react to dynamic fluctuations and volatility inherent in electronic trading.

This electronic trading incubator promises to produce some of tomorrow’s leaders in market making, high frequency trading and quantitative finance.

Promising times lay ahead for electronic trading in Asia. While there is still some way to go in terms of an open and robust regulatory framework, a reduction of expensive trading fees and trading sophistication the seeds are being sown and the harvest is forthcoming.

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