Published On: Sat, Oct 2nd, 2010

Fragmentation in Asia Gaining Steam

Fragmentation in Asia Gaining SteamLiquidity Fragmentation in Asia – Will It Happen or Wont it? was the title of a seminar held by Chi-East and Fidessa in Singapore this past September 30. The panel included Ned Philips CEO of Chi-East, Quentin Limouzi of BNP Paribas, Josephine Kim of BAML, Glen Lesko, Instinet’s Asia CEO and Fidessa’s own Steve Grob. The general consensus was that Asia is not one zone but a series of several countries that aren’t very likely to adopt a pan-regional competition mandate like MiFID. And that fragmentation is here and will accelerate. In particular, “darkpools will grow faster than lit in Asia” Mr. Lesko said. “Japan is already trading around 4% in the dark.”

The panel concurred that Asia needs execution competition like any other product. Consumers want choices and better service. “The buy-side has a hard time finding liquidity” added Ned Philips.

And Asia’s regulators are responding though not as quickly as some would like. Australia’s ASIC will publish its Market Integrity Rules (equivalent to Reg NMS or MiFID) for consultation shortly which are expected to spell out the ground rules for competition including introducing a consolidated tape and national best bid and offer.

The discussion moved into the clearing aspect of the business too. Exchanges in Asia monopolize not only execution but clearing and settlement as well. It was accorded that they wanted to see more competition at the clearing level but were all happy to settle trades with the same body in line with the US’s DTCC structure.

Chi-East will be pioneering competitive clearing in both Japan and Australia through LCH Clearnet in their business model. They are focusing on the whole cost of trade not just price improvement and sourcing liquidity.

The panel, moderated by Ludovic Blanquet CEO of Cheuvreux/CLSA Global Portfolio Trading, offered a rare opportunity to hear from Asia’s alternative trading venue players who were all convinced fragmentation is here to stay and that Asia needs more alternative trading venues.

The evening ended with Steve Grob showing us how Fidessa’s Fragmentation Index worked and some of the fragmentation already present in Japan and India. “The timing of the Fragulator in Asia couldn’t be better given what is happening in the region” he said and I couldn’t agree more. Incredibly, this is a free website I will be sure to frequent.

One of the countries included in the Fragmentation search in Asia was Vietnam. I laughed to myself but I hope it will happen one day.

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