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Hong Kong: First A-share Industry Sector ETFs to Debut on HKEx

Hong Kong’s Exchange Traded Fund (ETF) market further expands with a series of five Mainland A-share industry sector ETFs setting to debut on Wednesday, 18 November on the Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx).

The new Mainland A-share index ETFs are:

Stock Code Name of ETF Benchmark index
2846 iShares CSI 300 A-Share Index ETF CSI 300 Index
3050 iShares CSI A-Share Energy Index ETF CSI 300 Energy Index
3039 iShares CSI A-Share Materials Index ETF CSI 300 Materials Index
2829 iShares CSI A-Share Financials Index ETF CSI 300 Financials Index
3006 iShares CSI A-Share Infrastructure Index ETF CSI 300 Infrastructure Index

With the listing of these five new ETFs, there will be a total of eight ETFs on Mainland A-share indices listed on the Exchange, and HKEx will be the first exchange with Mainland A-share industry sector ETFs.

All ETFs listed on the Exchange, including these five new iShares listings, are designated for market making and for short selling with tick rule exemption.  The market makers for these five ETFs are Citigroup Global Markets Asia Limited, Credit Suisse Securities (Hong Kong) Limited and UBS Securities Hong Kong Limited.

On 18 November, the Exchange will have listed 42 ETFs.  There are eight ETFs on Mainland A-share indices, seven on Hong Kong equity indices, 22 on other regional and international equity indices, two on commodities and three on bonds and money markets.

The three other Mainland A-share index ETFs are:

Stock Code Name of ETF Benchmark index
2823 iShares FTSE/Xinhua A50 China Index ETF FTSE/Xinhua China A50 Index
2827 W.I.S.E. – CSI 300 China Tracker CSI 300 Index
3024 W.I.S.E. – SSE50 China Tracker SSE50 Index

Investors should note that all A-share ETFs use derivative instruments to synthetically replicate the performance of the underlying benchmarks.  These ETFs are subject to counterparty risk of the derivative instruments’ issuers and may suffer losses if such issuers default or fail to honour their contractual commitments. For a better understanding of the risks involved, investors are advised to read the ETFs’ prospectuses in full prior to making any investment decisions.  Information on the various risks of ETFs and their structures is available on the HKEx website.

Source: MondoVisione 17.11.2009

Filed under: Asia, China, Exchanges, Hong Kong, News, , , , , , , , , , ,

Shenzhen ChiNext GEM Offline Share Subscriptions Attract 217 Mutual Funds

Offline share subscriptions for the first 28 companies to list on Shenzhen’s Growth Enterprise Market attracted 217 mutual funds. An average of 34 funds participated in each stock listing on the so-called “ChiNext” market, according to data obtained by Caijing.

The biggest single investor was the ICBCCS Enhanced Income Bond Fund, run by ICBC Credit Suisse Asset Management Co., which bought stakes in 23 of the 28 companies.
Full article in Chinese: http://www.caijing.com.cn/2009-10-28/110296927.html

» The GEM, which has been branded “ChiNext,” was officially launched Oct. 23, with the first batch of 28 listed companies to commence trading on Friday 30.10.2009

Source: Caijing, 29.10.2009

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Shanghai Stock Exchange Central SOEs ETF launched

October 27 witnessed the 1st ETF, namely, the SSE Central State-owned Enterprises ETF Index Fund, on the market in 3 years after General Manager Guo Tehua of ICBC Credit Suisse Asset Management Co., Ltd. (ICBCCS) and President Chen Geng of Guotai Junan Securities Co., Ltd. stroke the gong to announce the opening of trade on the Shanghai Stock Exchange (SSE) that day. The new product provides the investors who keep their eyes on the sector of the state-owned enterprises (SOEs) with another high-efficient investment instrument. All this will further activate the SOEs sector and ETF trading and attract more investors by offering more opportunities for investment in the SOEs.

Relevant officials from the SSE and China Securities Index Co., Ltd. as well as nearly a hundred of guests from several securities dealers and assets management institutions extended their congratulations. ICBCCS General Manager Guo Tehua and SSE Vice President Liu Xiaodong signed the “Agreement on Listing”.

It is learnt that the SSE Central SOEs ETF, the 1st listed ETF in 3 years and the first of its kind ever in China, tracks the SSE Central SOEs Index, which pools 50 stocks of listed companies of SOEs with large market capitalization and sufficient liquidity on the SSE. So, it is also called the “super SOEs blue chip”. Benefited from the RMB4 trillion economic stimulus plan of the state and the increasingly speeding process for reorganization of SOEs, the value of investment in SOEs has long been cherished by the investors. Statistics show that in 2009, such indicators as the P/E and P/B ratios of the SSE Central SOEs Index are the lowest among the main indices. By October 21, 2009, the average P/E ratio of the SSE Central SOEs 50 Index had been 22.16 times, lower than that of the SSE Composite Index of 26.63 times, that of the SSE 50 Index of 23.24 times and that of the CSI 300 Index of 25.75 times. Over RMB3 billion were achieved through online cash subscription in a single day, raising 4.5 billion units from a great many excited subscribers during the period of issuing SSE Central SOEs ETF.

The securities code for listing and trading of SSE Central SOEs ETF is “510060”, with the code for subscription and redemption of “510061”. Investors can trade the fund on the secondary market in the same way of purchase and sale of stocks. Besides, they can also make subscription and redemption for the fund through the package portfolio of constituent stocks of the SSE Central SOEs Index on the primary market, with a minimum requirement of 1 million fund units for each lot.

Source: MondoVisione, 29.10.2009

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Dark Pools:New ideas fail to lift mood over dark pools

This week, Liquidnet, a US operator of “dark pools”, unveiled the latest device to emerge in European share trading, which it called “Supernatural”.

The company claims it will help European fund managers increase their chances of finding matches for large blocks of shares in Liquidnet’s dark pool by linking it up with other exchanges, brokers and alternative trading platforms such as Chi-X Europe.

Yet even as dark pools continue to generate eye-catching ideas, controversy is raging over their very existence. In Europe, the issue is pitting exchanges against big banks in a new battle over control of billions of dollars in share trading orders.

Dark pools allow the matching of large blocks of shares without prices being revealed until after trades are completed. Regulators on both sides of the Atlantic are studying them amid questions over their transparency.

Dark pools are not only run by companies such as Liquidnet; they are also operated by banks’ trading arms and exchanges. They have grown rapidly since first appearing in the US in the late 1990s, with at least 15 in existence in Europe.

The exchanges have launched an attack on the proliferation in Europe of pools run by the banks – such as Goldman Sachs, Credit Suiss, and Morgan Stanly – arguing they are operating outside the view of European regulators. 

Mifid launched competition in European share trading in 2007, leading to an explosion of new type of trading venues.

The Federation of European Securities Exchanges, whose members include Deutsche Börse  and Euronext , wrote this week to the Committee of European Securities Regulators in Paris, claiming banks’ dark pools were “unregulated venues” operating with “full opacity”.

It said that under Mifid, crossing networks were supposed to register under certain formal categories that would subject them to the same market surveillance and price reporting requirements as exchanges.

Yet many were not, FESE claims. “Practically all of this trading is outside the realm of European rules and thus beyond the reach of supervisors,” wrote Judith Hardt, FESE secretary general, in the letter to CESR chairman Eddy Wymeersch, a copy of which was obtained by the Financial Times. “As a result, more trades are being executed away from the public view, without interacting with other orders, and at prices that may not be optimal for clients.”

She argued that European equity markets “are becoming a dealer market”.

The banks are furious. They see the FESE move as exchanges exploiting post-crisis concerns over off-exchange markets to persuade policymakers of the benefits of channelling trading of stocks through regulated exchanges.

Dark pool trading accounts for about 4 per cent of all trading in Europe, according to consultancy Tabb Group. But it is growing, and with the proliferation of the types of “dark” trading venue unleashed by Mifid, bankers say exchanges fear trading could shift further away from them. “The exchanges are opportunistic, fear-mongering. And it’s pretty clear why: commercial interest,” says one.

The banks reject the notion that their crossing networks are unregulated, pointing out that broker-dealers are already regulated, and the banks’ clients – such as money managers – are regulated.

They also argue that their dark pools perform a legitimate function at a time when large orders are increasingly hard to execute on exchanges as complex electronic trading strategies slice orders into smaller and smaller sizes.

They reject the FESE view that investors are at a disadvantage by the alleged “opacity” of bank dark pools. They say that many of the block trades being carried out in them are placed by the banks’ asset manager clients, which in turn are handling funds placed with them by millions of ordinary investors.

The problem, industry experts say, lies with Mifid itself. Exchanges say that bank dark pools are not required to report trades in a coherent way, or even at the same time as those trades reported to the market by exchanges. Mifid is unclear on the issue.

Steve Grob, director of strategy at Fidessa, a trading technology company, says: “The reporting environment in the US is much more transparent. There needs to be some clear regulation about how they report what they do.”

Niki Beattie, managing director of The Market Structure Practice, a consultancy, says: “The thing is that brokers are governed by a certain set of rules and exchanges are governed by another. Mifid failed to move with the times.”

She believes, however, that Mifid has given brokers an “unfair advantage” over exchanges. “They are both trying to be liquidity pools and [Mifid] has given the brokers an unfair advantage,” says Ms Beattie, a former trading strategist at Merrill Lynch.

CESR is studying the issue. Last week Charlie McCreevy, European Union internal markets commissioner, said dark pools would form part of the European Commission’s planned review of Mifid. That would focus on whether the growth of those operated by broker-dealers gives their backers “unfair commercial advantages” in the market.

With dark pools under attack more broadly, banks may have a tough job making their case. Ms Beattie says: “The exchanges probably have some right to be out there questioning this.”

Source: FT, 24.09.2009 by Jermy Grant

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HSBC in China JV talks with Industrial Securities

HONG KONG -(Dow Jones)- HSBC Holdings PLC (HBC) is in advanced talks to set up an investment banking joint venture in China with Industrial Securities Co., a person familiar with the situation said Wednesday.

The UK-listed HSBC, which already has a wide-reaching presence in China, is seeking to join the handful of foreign firms with a presence in the mainland’s lucrative underwriting and advisory markets.

The person familiar with the situation said it is difficult to say when HSBC and Industrial Securities will agree on a deal, and declined to elaborate.

Industrial Securities is a Fujian-based brokerage with a registered capital of CNY1.93 billion, according to its website. It provides a full-range of services in China, including broking, advisory, and new listing underwriting.

The Apple Daily reported Wednesday, citing unnamed sources, that the two sides may strike a deal by the end of this year to set up the venture, subject to agreeing on the terms and regulatory approval.

HSBC wants management rights over the entity, a model that UBS AG (UBS) and Goldman Sachs Group Inc. (GS) used when setting up their Sino-foreign brokerage joint ventures, according to the report in the Chinese-language newspaper. China has capped the maximum stake foreign banks can have in a Chinese brokerage venture at 33%, though a few of the tie-ups have accorded management control to the foreign firm.

If its venture is approved, HSBC would be joining a list of just a handful of foreign brokers that have set up shop in the mainland through joint ventures in recent years.

In December, the Chinese government ended an almost two-year moratorium on approving new joint ventures, as it shielded its domestic brokerages from foreign competition. Since then, China has approved ventures by Credit Suisse Group and Deutsche Bank AG (DB), though those tie-ups are only allowed to underwrite and sponsor deals domestic securities and debt deals, and not the trading of Chinese-listed shares.

But the list of foreign firms seeking entry is long, especially with China’s stock market being one of the world’s best performers this year. Many Shanghai-listings also registered gains of more than 90% on their first-day of trade.

Australia’s Macquarie Group Ltd. (MQG.AU) has signed a memorandum of understanding with Inner Mongolia-based Hengtai Securities Co. on setting up an investment banking joint venture, while South Korea’s Samsung Securities Co. (016360.SE) said earlier it was finalizing which domestic partner it is going to team up with.

Citigroup Inc. (C) and Morgan Stanley (MS) are also awaiting regulatory approval for their China joint ventures. Morgan Stanley has a stake in China International Capital Corp, but it is a passive financial investor.

“I’m not surprised to hear of more joint-venture acquisitions by HSBC in local financial institutions rather than in banks,” said Dominic Chan, an analyst at BNP Paribas.

“I think HSBC has been focusing on mainland China and Asia, and this deal is part of its ongoing program to divert effort and capital from Europe and America back to Asia,” he said.

A brokerage in China would add another crucial leg to the bank’s already dominant presence in the country. In China, HSBC has an 18.6% stake in Bank of Communications Co., the nation’s fifth-largest lender by assets; a 16.7% holding in Ping An Insurance (Group) Co. of China Ltd.; 8% ownership of Bank of Shanghai Co., and a 49% stake in HSBC Jintrust Co, a Shanghai-based fund company. HSBC’s 50-50 life insurance joint venture with Beijing-based financial services provider National Trust Ltd. was approved by regulators recently and is set to be up and running in the third quarter.

The lender has also hired investment bankers to advise it on listing on the Shanghai bourse next year, in potentially the country’s first listing by a foreign company. Although based in the U.K., HSBC made a quarter or around US$2.98 billion of its first-half pre-tax earnings from China.

Source: Dow-Jones, 19.08.2009

Filed under: Asia, Banking, China, News, Services, , , , , , , , , , , , , , , ,

Credit Suisse China JV with Founder Securities

The China Securities Regulatory Commission has given Credit Suisse the go-ahead to launch a joint venture with local firm Founder Securities. The Swiss bank takes a 33% share in the new entity, which will be able to sponsor and underwrite A shares, foreign investment shares and government and corporate bonds. The firm will not be able to offer secondary market services such as research and broking, however: under new regulations announced in 2007 Sino-foreign joint ventures must show a track record of five years’ unblemished service before being able to expand their activities.

Credit Suisse has already made some headway in China through its Shanghai representative office, ranking fifth on the Dealogic league table for equity bookrunners for financial year 2007 with 24 deals and a market share by value of 5.32%. That puts it in a large group of peers with similar market shares, as compared with top-three banks Morgan Stanley, Goldman Sachs and UBS, all of which have more established presences in China and each of which commands more than 10% of equity capital markets share. Those three top players all have established joint ventures of their own, and Credit Suisse and Founder Securities will be hoping to break into the 10% market-share club now that they are following suit.

Euromoney understands that the two firms have been in talks since last summer, with a memorandum of understanding signed in January. A spokesperson for the firm said that it had yet to decide on a name for the new entity. The joint venture will be run from Beijing and will be headed by Neil Ge, previously managing director at Credit Suisse’s Shanghai office. Lei Jie, chairman of Founder Securities, will take on the role of chairman.

The announcement of the Credit Suisse-Founder Securities joint venture follows the news on June 16 that CLSA had met the five-year requirement and its 33%-owned Sino-foreign joint venture, CESL, now has a securities broking licence (restricted to the Yangtze River Delta area) and a securities investment consultancy licence. CLSA, a brokerage, investment banking and private equity group headquartered in Hong Kong, says that the licence permits CESL to offer full-service research, sales and broking services for local and offshore clients wishing to trade A shares on the Shanghai and Shenzen stock exchanges.

Source: Euromoney, 11.08.2009

Filed under: Asia, China, News, Services, , , , , , ,

China Keeps Global Investment Quota Curbs, Funds Say QDII, QFII

China will curb expansion of a program for local investors to buy stocks and bonds overseas until markets recover, according to the joint-venture funds of Credit Suisse Group AG and Prudential Financial Inc.

Qualified domestic institutional investor, or QDII, licenses will be difficult to obtain until regulators are convinced international markets have stabilized, said Thomas Kwan, the director of fixed-income at ICBC Credit Suisse Asset Management Co. in Beijing. MSCI’s global stock index is down 34 percent in the past two years, while U.S. Treasuries delivered gains of only 4 percent to yuan-based investors in the same period, according to Merrill Lynch & Co.

China had granted licenses to 50 companies to invest as much as $64.5 billion in international assets by the end of 2007, according to the latest government data. The program is designed to reduce currency reserves and ease pressure on the yuan to strengthen. The only licenses approved in the past year have been for “segregated accounts” aimed at wealthy individuals or institutions, limiting losses for retail investors, Kwan said.

“More important for them at the moment is to protect the investors, and this objective comes ahead of the currency,” said Kwan, whose company manages 75.2 billion yuan ($11 billion) in assets. “The regulator will let the money go out again when they think the market is safe.”

‘Orderly’ Process

The State Administration of Foreign Exchange has “adhered to the principle of controlling risks and opening up in an orderly manner when approving QDII quota,” the currency regulator said in a faxed statement to Bloomberg News today. Among companies granted the biggest QDII quotas were Ping An Insurance (Group) Co. and China Asset Management Co., according to the latest data from SAFE, released Dec. 31, 2007.

China first permitted financial institutions to invest overseas under the QDII program in April 2006. China Minsheng Banking Corp., the nation’s first privately owned bank, dissolved its overseas investment fund in March 2008 after it lost more than 50 percent during the global credit crisis.

“At the first stage, QDII funds didn’t achieve the goal the government wanted,” said James Yuan, chief investment officer at Everbright Pramerica Fund Management Co., which helps oversee 36 billion yuan in assets. The company has yet to receive approval after seeking a QDII quota in May, he said.

September Approvals?

The Shanghai-based company is a venture between Prudential Financial, the second-largest U.S. life insurer, and Everbright Securities Co. China restricts foreign ownership of fund management companies to 49 percent.

China’s foreign joint venture fund management companies expect to double the assets they oversee by 2012, an April survey by PricewaterhouseCoopers LLP showed. Respondents said slow government approvals for new products may impede growth.

There is speculation that regulators may start granting approvals for mutual fund QDIIs in September, according to ICBC Credit Suisse’s Kwan. China is aggressively encouraging its companies to do mergers and acquisitions overseas, he added.

Kwan is starting a “segregated account” QDII fund that will be able to hedge currency exposure and profit from bets that assets around the world will both rise and fall, offering the possibility for diversification for investors in Chinese equities. His company is part-owned by Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value.

Stronger Yuan

The QDII system and the qualified foreign institutional investor, or QFII, program, are part of China’s plans to move toward a fully convertible currency. The yuan was little changed at 6.8308 per dollar as of 5:24 p.m. in Shanghai. The government has kept the currency around this level for the past year after allowing it to rise 21 percent against the U.S. dollar in the previous three years. Kwan forecasts yuan gains of about 3 percent to 5 percent a year.

Expectations for the yuan to strengthen are discouraging the establishment of new QDII funds, said Yang Aibin, head of fixed-income at China Asset, which supervises 230 billion yuan of assets. He added that this was his personal opinion.

“Fund managers are less willing to invest overseas because of possible foreign-exchange losses,” he said.

Source: Bloomberg, 28.07.2009

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Shanghai Stock Exchange Vice President Liu Xiaodong: ETFs Enjoys A Big Boom

“The development of ETF has been beyond our imagination and it is now making good time.” Vice President Liu Xiaodong of the Shanghai Stock Exchange (SSE) said at the ICBC Credit Suisse SSE Central State-owned Enterprises ETF release conference yesterday that the SSE would drive the development of ETF further to enrich the variety of the ETF products and gradually build it into one of the major SSE products.

According to Liu, ETF is a kind of open-ended index fund listed and traded in the exchange, which tracks a basket of stocks with the characteristics of low cost, diversified investment, high transparency and high fluidity. Since the birth of the first ETF in 1993, ETF products have flourished rapidly worldwide. As of the end of April 2009, over 3,000 ETF products had been listed on 42 exchanges worldwide, with the asset scale up to US$706.9 billion in total. An increasing number of companies have engaged in the development of ETF products, with the amount of existing ETF administrators more than 90 and a number of fund management companies specializing in ETF products. Meanwhile, the variety of ETF products have been diversified from the single stock ETF to bond ETF and commodity ETF, from the ETF in single market to the ETF across markets and from the passively managed ETF to the actively managed ETF. It is noticeable that ETF products have become one of the most successful products worldwide at the moment as they realized large sums of net capital inflow even under the international financial crisis in 2008 when the global asset depreciated seriously.

Liu pointed out that the ETF market in China is still growing, and the SSE has always attached importance to the promotion of product innovation. The introduction of ETF products was the important measure taken by the SSE in recent years to develop the fund industry, perfect the product variety and drive the innovation. On the one hand, ETF products enrich the investment variety and provide investors with a cost-efficient asset allocation tool which tracks index income. On the other hand, ETF product, like the index, is unlikely to be manipulated. With high fluidity, it is one of the major targets of derivatives as well as the cornerstone of product innovation. Through the efforts of all market participants, the SSE introduced the first ETF product to the domestic market in early 2005 and won several international awards. After 4-year development, there are 5 ETF products in the domestic market, with the asset scale of over RMB30 billion and the daily trading volume of approximately RMB2 billion. In terms of the asset scale, the domestic ETF market is the 3rd largest ETF market in Asia following Japan and Hong Kong. With regard to the trading scale, the domestic ETF market is ranked first in Asia and placed among the top 10 globally. As a whole, the development of ETF in the past was successful. The SSE Central State-owned Enterprises ETF introduced by ICBC Credit Suisse Asset Management Co., Ltd. this time is the first ETF product introduced by the domestic market in the last two years. SSE Central State-owned Enterprises Index comprises 50 listed companies with large scale and high liquidity controlled by central state-owned enterprises. These companies are also leading enterprises in 10 to-be-revitalized industries that the RMB4000 billion national investment is planned for. The timely introduction of SSE Central State-owned Enterprises ETF provides investors with an opportunity to share the income of the high quality large-cap stocks in a more easy and transparent way.

Liu also stated that with the diversification of the index, the establishment of the supporting mechanisms including the margin trading and securities lending and the stock index futures fuelled the development of ETF. In the days to come, the SSE will vigorously support the development of ETF and facilitate its expansion in terms of industry and type so as to meet the need of investors. There will be a lot of ETF products awaiting the approval for listing in the future. The SSE will actively impel the development of ETF in China and build it into a major SSE product. Liu added that there are still large space for the promotion and marketing of ETF. He appealed to the dealers to support the sale of relevant ETF index funds and work together to drive the development of ETF in China.

Source: SSE, 20.07.2009

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Nomura Seeks Partner in China

Last week Nomura Holdings Inc. announced its search for a partner in China to help it establish an equity underwriting business. The brokerage house, Japan’s largest, also declared its goal to take in 50% of revenue from outside Japan by 2011, up from 30%.

These announcements come just as the equities market in China is starting to heat back up. Two weeks ago we discussed in the ChinaVest newsletter the re-introduction of IPOs to the Chinese markets. This week, Guilin Sanjin Pharmaceutical Co received bids for 584 times the number of shares available in the electronic traunche for China’s first IPO in 2009.

The Shanghai Composite Index, the world’s second-best performing major benchmark, is up 70% since January. Some projections indicate that Chinese companies could raise up to US$2.5 billion in local equity offerings in the second half of 2009. Nomura’s announcement indicates their desire for a piece of that US$2.5 billion dollar pie. “We want to be able to underwrite equity transactions in China, so we’re looking for joint venture partners. It’s a very important agenda,” commented a Nomura spokesman.

Nomura is not alone in their desire to take advantage of the apparent renaissance of China’s equity market. Both Credit Suisse and Deutsche Bank recently received approvals for securities ventures that can underwrite offerings in Shanghai and Shenzhen.

Source: chinavest.com, 10.07.2009

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Credit Suisse launches algos for Indian equities

Investment bank Credit Suisse’s Advanced Execution Services (AES) electronic trading unit has launched a suite of algorithmic strategies for trading Indian equities.

The suite includes Credit Suisse’s SNIPER and GUERRILLA liquidity-seeking algorithms and its INLINE strategy, which is designed to minimise implementation shortfall. It also includes traditional strategies that seek to divide trading volumes up over time and aim to trade at the volume-weighted average price of a stock. The algorithms have been adapted to the Indian market.

“Sophisticated liquidity-seeking algorithms will help deliver better execution to clients trading Indian equities,” said Brook Teeter, head of AES sales for Asia-Pacific, in a statement. “Investors will be able to automate their trading strategies and customise the algorithms to serve their objectives. This will help them reduce signalling risk and market impact, and to access liquidity at the optimal price.”

Credit Suisse AES began offering direct market access (DMA) – a prerequisite for algorithmic trading – in India in September 2008. India’s securities regulator, the Securities and Exchange Board of India, approved the use of DMA by institutional clients in April 2008. Credit Suisse AES was the first foreign broker to launch DMA in Malaysia in January 2008, and the first foreign broker to launch DMA in Indonesia in August 2008.

Source: The Trade News, 19.06.2009

Filed under: Asia, India, News, Trading Technology, , , ,