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Asian dark pool BlocSec removes minimum order size requirement

BlocSec, the first Asian dark pool to cater to the buy-side and the sell-side, owned by CLSA Asia-Pacific Markets (‘CLSA’), will remove the current minimum US$250k or 20% of the 30-day Average Daily Volume (‘ADV’) order size requirement 1.

Removal of such minimum order size requirement will enable smaller size orders to flow into the system, increasing both liquidity and matching. BlocSec clients can continue to submit and trade large size block orders in BlocSec simply by specifying the minimum quantity fill for their executions.

Christian Chan, Director of Electronic Execution Sales, CLSA said: “We continue to improve and respond to client needs and have removed our minimum order size to source and deepen our liquidity pool, so as to provide greater flexibility across the platform and markets in which we operate.”

BlocSec has been designed to ensure complete anonymity for buyers and sellers. Order entry and matching occurs without the risk of giving away client name, side, position or price of an order which means zero information leakage.

“In addition, we have added the ability for our Client Relationship Managers to accept manual orders and route any balances to the CLSA trading desk if instructed to do so. Again, ensuring more flexibility for clients and a smooth and seamless trade flow process,” Chan added.

Since its launch in May 2008, BlocSec has become the preeminent Asian liquidity aggregator and electronic crossing network for Hong Kong, Japan, Singapore and Australian equities with an average daily liquidity flow over US$77m and an average cross size of US$1.04m.

BlocSec provides traders the ability to place orders with complete anonymity and zero information leakage into the market. BlocSec continues to gather momentum and build liquidity in over 800 distinct names with 50% of all clients entering orders securing a match.

As a CLSA group company, BlocSec has a substantial community of institutional investors with the ability to provide a deep pool of liquidity. Liquidity is also maximized as BlocSec is open to both buy and sell side clients.

Source: FINEXTRA 17.11.2009

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Filed under: Asia, Australia, Exchanges, Hong Kong, Japan, News, Singapore, Trading Technology, , , , , , , , , , , , ,

Global economic slowdown is not stopping Asia’s exchanges.

A  year ago, traders and technology vendors in Asia were riding a growing wave of liquidity and technology adoption. Direct market access (DMA), alternative trading systems (ATSes) and crossing networks steadily increased throughout the region as regulatory barriers began to fall away. While the financial crisis is putting a damper on the party, don’t expect opportunities in Asia to dry up, experts say.

“Asia is on a path of evolution that is going to converge eventually with the technology in the West,” says Neil Katkov, the Tokyo-based managing director of the Asia research group at Celent, a global financial market research and consultancy. With many traders and brokerages tightening their belts, adoption may slow, he says, but it will not disappear.

The opportunities are greatest for Asia’s exchanges themselves, which could take advantage of the slowdown to improve their own technology and compete with some of the trading networks that have been entering the region. “I think we’re going to see more of a realization from the exchanges that adopting modern technology is a competitive imperative,” Katkov says.

CONTINUING GROWTH
While algorithmic trading and order management systems (OMSes) have continued to grow in the region, the trends that attracted the most attention in 2008 were trading networks and DMA capabilities. Regulators in the region spent much of the year grappling with how to accommodate the dark pools, crossing networks and off-exchange trading platforms that were arriving and expanding.

These networks have been driven in part by an expansion of asset classes. A wide range of investors has been diversifying, adding new products into their portfolio. “Traditional buy-side firms such as pensions are starting to look into over-the-counter (OTC) derivatives, commodities and foreign exchange (FX),” Katkov says. “More products are being traded more frequently by more types of people.”

Local brokerages are also starting to make a difference, says Nevin Price, regional manager for Asia at Fidessa, a global trading systems, market data and connectivity solutions vendor. Aiming to compete with larger international firms, local brokerages are looking to adopt the newest technologies and gain access to new markets. As markets tighten, brokers want to keep costs down, and technologies that help to streamline trading and provide easy access to exchanges have been on the rise.

Many of these brokerages had their options expanded in the last year. Joining Liquidnet and ITG, which have been operating crossing networks in Asia since 2007, a new network entered the market.

BlocSec, an Asian electronic crossing network that opened in May and is owned by brokerage CLSA, now has 70 customers and operates in Hong Kong, Japan and Singapore. Liquidnet and ITG’s Posit network have also expanded their networks in the region. Still, with only a handful of players, there is ample room to grow.

“While dark pools have exploded in the US, they are still at their beginning stages in Asia,” says Ned Phillips, CEO of BlocSec. “I really think the more platforms the better in Asia, as it will grow the market but will not result in the fragmentation seen in the US.”

Crossing networks have an easier time entering Asia, as they don’t require a wholesale change in regulations, says Katkov. The arrival of DMA and the push of alternative trading networks, however, signal the loosening of some regulatory barriers in the region. “India has just allowed DMA this year and Australia is considering allowing off-exchange trading,”

A CHANCE TO COMPETE
While regulatory changes opened up markets in the past year, the financial crisis could prompt some exchanges to act defensively, blocking the incursion of off-exchange trading platforms and other networks that could cut into their liquidity.

Exchanges have taken defensive positions in the past, like  Australia as a recent example. While three off-exchange networks have applied to operate in the country, a call to review the regulations governing exchanges in the country has delayed the process for more than a year. Malaysia has also delayed allowing DMA on that country’s exchange.

Sang Lee, co-founder and managing director of Aite Group, an independent research and consultancy firms focusing on the financial services industry, says he believes the economic slowdown will help Asia’s exchanges view the competition in a new light. “Ironically, with all this mess happening the exchanges themselves are in great positions,” Lee says. “In the Asia market, real competition has not happened yet. All of the exchanges in Asia have the opportunity to become more innovative and more aggressive and competitive against some of these new smaller players.”

Many of the problems of the financial crisis appeared in the OTC market, Lee points out, which do not boast the transparency that traditional exchanges offer. “All indications are that we will see a heavier hand in terms of regulation in the coming year,” he says. “The global exchange market will have a lot of opportunities to take advantage of that.”

This is an opportunity that is unique to Asia. In Europe and the US, traditional exchanges are already losing significant amounts of liquidity to alternative trading venues. “For the European market it might be too late already,” says Sang. “But in Asia, exchanges have the chance to come out ahead.”

Exchanges in Asia could move to beat dark pools at their own game, offering their own alternative-type trading venues. Partnering with already-established networks in the West such as Chi-X could be another strategy Asian exchanges employ in the future.

“These are defensive moves, but not in a conservative way,” Katkov says. “Instead, they are trying to embrace new technologies and attract the most efficient services they can. I think that is the type of defensive move we’re more likely to see.”

Source: Waters Online, by Lauren Hilgers 06.01.2009

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Asia-Pacific: Best-Execution Regulations on the Way?

While the U.S. and European Union have rules mandating that brokerages find the best possible price for clients, there are currently no equivalents in the Asia-Pacific region. That could change, however, as algorithmic trading, technology advances and buy-side pressure nudge the more developed economies in that direction.

“The buy side is taking increasing control of the trading process and the concept of best execution is gaining traction, although we are still some years behind the U.S., and to a lesser extent Europe, in terms of the availability of alternative trading venues,” said Gabe Butler, director of sales in Hong Kong for New York-based agency brokerage Investment Technology Group (ITG). There are more than 40 alternative trading systems (ATSs) in the U.S., and a bevy of platforms have been launched in the EU since the Markets in Financial Instruments Directive (MiFID) became effective late last year.

Australia

In Australia, the Investment & Financial Services Association–a trade group representing buy-side firms–issued guidance in 2006, but the country has not yet made best execution a regulatory requirement. Brokers, however, are taking the idea seriously, due in part to buy-side demand.

Steven Hammerton, head of portfolio trading and direct execution at UBS Securities Australia in Sydney, noted that “UBS has been strictly in compliance with best execution, and we think it’s something very important to our clients. We’ve been investing heavily to achieve best execution.” Hammerton pointed to the firm’s algorithms, which are “written in a way to help you achieve best execution in a fast-moving market.”

The growing use of algorithmic trading and direct-market access (DMA) in Australia this year has increased volatility and widened spreads, which “has resulted in the standard deviation of estimated trading cost more than doubling,” said David Broadfield, analyst at ITG and author of a recent report on Australian market microstructure. “This highlights the importance of execution to the overall investment process and the potential danger of failing to adopt best-execution practices.”

Fund managers need to pay attention to hidden costs, said Michael Corcoran, ITG’s Sydney-based director of trading. Research shows that obvious costs–broker commissions and tax–are staying close to 18 basis points, said Corcoran, whereas hidden costs raise that to 48 basis points. “They will have to more aggressively reduce the hidden costs within their portfolios if they want to stay in the game,” he said, adding that advanced trading methods can help bring those costs down once they are identified.

The game is about to change in Australia, as regulators are expected to open the Australian Stock Exchange up to competition from ATSs. Among those waiting for final approval are the AXE electronic communications network-owned by the New Zealand Exchange and a consortium of investment banks–Liquidnet Australia and Instinet–backed Chi-X.

“With the regulatory changes, there will be more electronic exchanges in the future,” said UBS’s Hammerton, adding that his firm will be well positioned to seek liquidity from those destinations. “We have invested in smart-order routing technology and will be able to offer clients smart DMA, which routes to the exchange with the best price,” he said.

Japanese ATSs

In Japan, “buy-side firms still have to go through brokers because direct connections to the exchanges are not available inside Japan,” explained Neil Katkov, Tokyo-based head of Asia research for Celent. “Less competition leads to an opaque market, where investors can’t be well protected.” For example, he said, several large local brokers are internalizing trades and benefiting from wide spreads.

“There is not much in the way of best-execution regulation, like in the U.S. and Europe,” said Katkov. Japan’s Financial Services Agency is only now beginning to make such initiatives a priority, he added, recently passing execution rules that will protect participants in pension plans. The regulators, however, are looking at adopting broader rules, in the style of MiFID or Regulation National Market System in the U.S.

Until then, the buy side will continue turning to alternative trading platforms, noted Katkov. Asia’s first crossing network, JapanCrossing, was launched in 2001 by New York-based agency broker Instinet, which is now a subsidiary of Nomura Holdings. But such venues–called private trading systems in Japan–have not been able to grab more than a 1 percent market share due to the existing exchanges’ chokehold.

Still, platforms such as Japannext and Monex Nighter are seeing increased volumes and vendors including MetaBit, TradingScreen, Tora Trading Services and Bloomberg are offering advanced connectivity. “Trading on such platforms is increasing because it gives buy-side investors a choice among quotes and, therefore, potentially better execution,” said Katkov.

No Plans in Hong Kong

DMA is available in Hong Kong and algorithmic trading is in demand, but best-execution regulations are not yet in the works. In a June speech, Martin Wheatley, chairman of the Hong Kong Securities and Futures Commission (SFC), noted that Hong Kong doesn’t need a Reg NMS because “we do not have alternative trading venues here where investors can trade Hong Kong securities.” But, “given the trends in the marketplace and the advances in technology, the SFC and other regulators in the region do need to keep an eye on the international development of this issue.”

ATSs are allowed under the current laws, but a key concern “is the accompanying fragmentation of previously centralized trading,” continued Wheatley. “These types of trades contribute to reducing liquidity in the reference market, simply by virtue of the fact that fewer orders get posted there. This in turn raises difficult questions about the extent to which the broker’s client is really achieving best execution.”

BlocSec operates a pan-Asian block trading platform that went live in Japan, Singapore and Hong Kong in May. Ned Phillips, CEO of BlocSec, a subsidiary of Hong Kong-based CLSA Asia-Pacific Markets, said that he sees growing interest in alternative platforms in Asia. BlocSec, which currently has 75 clients in Hong Kong, plans to expand to Australia and Korea next.

Ben Kwong, COO of Hong Kong brokerage KGI Securities Co., said that local brokers are “heavily investing in trading technologies.” KGI, for one, plans to invest HK$30 million ($3.8 million) this year to improve its trading platform because “it is the best way to save money,” said Kwong. “The average trading cost in Hong Kong is about 25 basis points, compared with 15 basis points with electronic trading.”

Korea Slow to Change

In Korea, best-execution rules are still in the distant future. Instinet and Samsung Securities in March launched Korea’s first crossing network. In July, Investment & Securities Co. became the country’s first firm to offer algorithmic trading capabilities to international clients, adopting event processing technology from Progress Software Corp.’s Apama division. Algorithms have yet to be widely adopted in the market, according to Gyun Jun, analyst from Seoul-based Samsung Securities.

Source: SecuritiesIndustry.com, 22.09.2008 by Wang Fangqing see full report at Securities Industry News

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