Seizing Innovation In A New Era

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By Rupert Walker, Managing Editor, GlobalTrading

The challenges and opportunities of new technologies preoccupied delegates at the recent FIX Asia Pacific Trading Summit.

The trading industry is in a race to devise and implement new technologies to gain a competitive edge, while recognising the importance of intra-firm collaboration to reduce costs and direct resources efficiently. Indeed, innovation and adapting to its consequences were major themes of the 16th FIX Asia Pacific Trading Summit held in Hong Kong on 10 May 2018.

In particular, blockchain technology and its operational functions are evolving rapidly, with new endeavours underway throughout the financial industry. Panellists in an early morning discussion shared their experiences form various projects, including the ASX Chess Replacement and Corda projects, as well as how they envisage deploying blockchain or distributed ledger technology within their business strategies.

“It was a wonderful discussion that examined blockchain based on real-world application in the financial industry,” said panel moderator Huayi Dong, Global Head of Electronic Trading Solutions at Daiwa Capital Markets.

Many firms are now moving from proof of concept to proof of value to determine whether or not to invest in the technology, and to assess the efficacy of its application. Practical issues such as interoperability and cost are central to the discussion, increasingly superseding conceptual or academic proselytising.

Elizabeth Stark, co-founder and CEO of Lightning Labs, argued in a keynote speech that the ascension of blockchain and cryptocurrencies is inexorable, and will help shape commerce in the near future. Her San Francisco-based company is tackling one the main deficiencies of digital currencies by developing an open protocol layer that leverages the power of blockchain and smart contracts to make fast, scalable transactions possible.

“Everyone is keen to see how the cryptocurrency market will evolve and institutional investing is likely to be the key factor,” said Avril Parkin, Head of Technical Relationship Management, North Asia, Thomson Reuters who introduced Ms Stark to a packed auditorium.

Operational challenges

The markets themselves are also posing challenges. For example, China’s capital markets are continuing to open up to international investors, and the inclusion of A-shares in the MSCI benchmark emerging market index has induced a sense of urgency to identify the best ways to gain exposure. China Stock Connect and the longer established QFII scheme are existing routes with respective merits as well as drawbacks, and the potential introduction of China depository receipts could offer easier access.

On the other hand, investor confidence and assurance is dulled by repeated instances of trading suspensions of A-shares by the Chinese authorities, especially when conducted in a manner that appears capricious, warned speakers on a panel assessing preparation for China’s MSCI inclusion.

In this environment, sell-side firms are experiencing greater competition while faced with increased demands from clients to adopt new technologies, implement multi-asset services and reduce and be accountable for costs.

Brokerages need to consider different ways to improve their services to clients and optimise their own operating models, concluded a panel discussing emerging trends for the sell-side.

Speakers reflected on the rate of margin compression affecting their businesses while under pressure to invest and innovate as trading complexity increases. The industry clearly needs to ascertain the appropriate payment model and pricing levels to offset the burdens of regulatory compliance and continual system upgrades.

“This panel revealed how ‘best ex’ obligations have led to a greater focus by the sell-side on the cost of providing different levels of service, and by the buy-side on who and what they want to pay for, and what it is worth to them,” said Mark Northwood, Founder, Bips Global, the panel moderator.

One solution, often proposed by buy-side firms, is the provision of utility-like entities that offer basic, essential services such as risk management and trade processing where there is a limited competitive imperative for individual brokerages to provide separate facilities.

New opportunities

Meanwhile, the buy-side is entering a new dawn, with expectations of the rapid growth of new technologies and promises of intellectual satisfaction for a younger generation entering the industry.

Indeed, “embracing data science and innovation on the trading desk is essential in order to meet the industry’s future challenges, from front office to operation and compliance,” said Stephane Loiseau, Managing Director, Head of Cash Equities & Global Execution Services – Asia Pacific, Societe Generale – Global Markets who moderated a panel that discussed “The Future of Trading”.

Traders will do more than complement automated processes, artificial intelligence and machine learning; instead they will them through the application of different, adaptive skills, expertise and initiative. It should be an exciting future for young professionals entering the trading industry.

“It was great allowing new faces on the Next Gen Leaders panel to reflect on career paths and offer intelligence on what strengths and qualities are required to be a leader in today’s electronic trading world,” said Dillon McNiven, Executive Director, Head of Electronic Trading, Asia Pacific, Instinet who moderated a discussion called “Up Next: Next Generation Leaders”, which included an impressive panel of speakers who will take the FIX Community to its next stage of development.

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