Hong Kong’s electronic trading community convened for the 13th Asia Pacific Trading Summit, with connections with China, market structure and buy-side initiatives featuring prominently in the discussion.
Attended by key industry leaders from the buy-side, sell-side, regulators and technical solution providers, the day began with an examination of the success of the Stock Connect program. Interest is driven by the rapid increase in trading volumes starting from Q2 of 2015, combined with the potential extension of the scheme to the Shenzhen Stock Exchange and the looming prospect of MSCI inclusion of A-shares, although challenges around the daily quotas and custodial arrangements persist. Chinese regulators are deliberately pursuing separate channels for foreign investors to access different parts of their capital markets in an effort to maintaining stability. Convergence of these channels will likely take place but much legal, regulatory and technical work needs to be done.
While Chinese trading links continue to drive headlines, much work is being done to improve efficiency at multi-asset trading desks. To set the backdrop for this discussion, the Singapore Exchange shared details of their new bond trading platform, which will be the first over the counter liquidity venue that is solely dedicated to Asian bonds. Trading costs, regulatory changes and simplified technology are driving the trend to multi-asset trading, but the reality of one trader covering all asset classes in Asia is unlikely.
Within Hong Kong, the new dark pool licensing regime is meant to protect retail investors from inconsistency of information, however, retail can often carry a greater risk of information leakage for larger trades. The Hong Kong Exchange’s consultation on the Volatility Control Mechanism and Closing Auction Session were widely reviewed as positive steps in developing Hong Kong’s market structure. With a wider gap in opinion between retail and institutional investors over the proposed rules, local brokers and their clients will likely require greater education.
An even greater need for discussion and collaboration exists between the buy-side and sell-side as they work out a solution to new rules about unbundling commission payments and research. Larger buy-side firms are likely to have worked out a solution already to allocate funds for research, but smaller firms may struggle to maintain adequate access. On the sell-side, new models for provisioning research, whether in tiers, menus or nominal fees are being explored. Much of the long-tail concern is over the future development of analyst talent and the retention of seasoned analysts.
Look out for more in-depth coverage of the event in the Q3 edition of the GlobalTrading Journal.