Transformational Trends in Asian Trading

A Recap of the 14th Asia Pacific Trading Summit

By William Haskins, for GlobalTrading

Technology and innovation were the common themes of the 14th Asia Pacific Trading Summit in Hong Kong, as traders and technologists gathered to discuss the issues facing Asian markets.

A record-setting 630 attendees gathered for a day of panel discussions as well as breakout sessions for the buy-side and technologists, organised by the FIX Trading Community.

Smarter technology

There are good use cases for blockchain in the post-trade space, explained Peter Tierney, MD and CEO of DTCC’s Asia data repository (DDRS). We are current exploring 2, one in the processing of tri-party repos and another in the processing of Credit Default Swaps. It is most likely that blockchain will be applied to specific solutions in whitespace rather than directly supplanting existing systems, Tierney told the full auditorium.

Achieving this will require building a legal language in contracts to complement the code, noted Alistair Duff, Consultant with R3CEV, a bank-backed blockchain consortium.

The advance of AI and machine learning has many concerned about the role of human traders, yet these concerns are misplaced according to Andrew Freyre-Sanders, Head of Equity Execution Services for CIMB Securities. Citing the recent contest between one of the world’s top Go players, Lee Se-dol, and Google’s AI AlphaGo programme, Freyre-Sanders pointed out that even with millions of practice matches, the human was still able to beat the computer. However, traders must invest in themselves and attain greater focus to remain relevant, he added.

The panel on fintech, moderated by ITG’s Clare Witts, discussed the role new firms are playing in bringing innovation back into banking and asset management. As established financial services firms focused on regulation and compliance since the GFC, fintech firms have stepped in to fill the ‘innovation gap’, and are now often partnering with established firms to bring new tools to market in a cost-conscious environment where everyone is trying to do more with less, she added.

The Influence of HFT

US market structure has split into asymmetric trading environments catering to particular niche customers claimed SEC whistleblower, Haim Bodek. HFT-oriented features have proliferated among exchanges, many of which effectively circumvented Regulation NMS, according to Bodek, who now runs a consulting practice, Decimus Capital Markets. HFT strategies have long been active in Asia, and they tend to share similarities with US/Euro HFT futures algorithmic trading tradition, Bodek shared in his keynote address.

The “secret sauce” of HFTs often amounts to little more than exchange innovations in order types, order modifiers, port settings dictating order treatment and price feed interfaces in their intended usage scenarios, Bodek explained. All of this stems from the unintended consequences of Reg NMS including the circumvention of market access and order protection rules, abuse and non-disclosure of HFT-oriented order types and the cross-pollination of latency and regulatory arbitrage.

Formerly of Hull Trading/Goldman Sachs, UBS and HFT options trading firm, Trading Machines, Haim Bodek was an early high profile case for the SEC’s whistleblower program. Bodek provided the SEC with data that led the agency to fine BATS Global Markets $14 million to settle charges that two exchanges formerly owned by Direct Edge Holdings gave advantages to certain HFT firms.

Trading China

Investors need to be patient as regulator is learning, attendees were told in the regulatory panel. It was suggested the CSRC is likely to implement high level rules and preserve its flexibility. Guidance on the program trading rules, for example, may not be public, but it will be there.

Speaking on a panel on optimising trading, attendees were told China was still an attractive long-term market as the ratio of market capitalisation to GDP showed room for growth. Speaking of the possible inclusion of A-shares in the MSCI indices, it was suggested the initial weighting for the A-share in the GEM index could be around 1.5%, assuming a 5% inclusion of A-share floatable market cap, which could attract US$15-20bn inflows from passive funds.

Better markets

On the panel featuring fresh buy-side perspectives, TCA tools for FX were called out as needing improvement, as currently, there is not enough data for benchmarking. Electronic trading platforms for FX and fixed income also need more traction. New formats of information flow are required, according to another panelist. Traders need to find the third dimension of information, pulling data across multiple sources.

Meanwhile, Hani Shalabi, Head of AES APAC for Credit Suisse, shared analysis suggesting 90% of fills on the Hong Kong exchange trigger the HK$2 minimum fee. Shalabi suggested the average transaction fee for the whole market is 0.76bps per trade, which is roughly double those on the Australian Stock Exchange and three times comparable fees on the Tokyo Stock Exchange.

Whether its more optimised trading, outsmarting HFT strategies or achieving more efficient access to Chinese markets, Bodek’s concluding statement applies equally well: “You have to do your homework.”

For a round-up of the day, please click here to view the GlobalTrading video.

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