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Asian Exchanges – The Awakening (Part II): FIX in China

By Stephan Stadelmann, FINETIK

Published in, on 01 May 2007 10:37:01

Back in 2005, I attended the first FIX Conference held in Shanghai. Although great numbers of local attendees showed up curious to learn about FIX, most local participants did not see much benefit in FIX for China.

Regardless of the bureaucrats’ strive to carefully loosen the tight network of regulations, China’s markets hit record lows and a fiercely competitive battle between securities houses squeezed margins. Little or no money was left to invest, making it an environment of bare survival. This was the situation less than two years ago despite the hype in the foreign press about China, which continued through all this time.

Despite this turbulence below the surface, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the China Securities Regulatory Commission (CSRC) understood the importance of FIX, and bought into the vision that a unified, standardised exchange trading protocol and interface would simplify infrastructure for market participants and exchanges in the long run. They also appreciated such unification would drive down IT expenditure, including support and maintenance, for the diverse market participants in China’s vast financial market, and prepare them for foreign competition.

In March 2003, the SSE and SZSE started to jointly develop a Chinese version of the FIX protocol called Standardized Trading Exchange Protocol (STEP), and in November 2003, CSRC set up the STEP Sub Committee, with founding members CSRC, SSE, SZSE, Shanghai Futures Exchange (SHFE), HuaXia Securities, GuoXin Securities and TaiYang Securities. The committee was given the task of building a standardised protocol, considering first and foremost the needs of the Chinese markets. In 2005, SSE joined the global FIX Protocol Limited (FPL) organisation and in 2006 FPL’s subcommittees for exchanges and ECNs.

Today, the STEP protocol is being implemented, based on FIX 4.4 with some minimal exchange specific variations in the SSE and SZSE versions. In other words FIX.

SSE tested its STEP engine as early as 2006 and will be deploying the engine to its market participants as part of the New Generation Trading System (NGTS), which will be operational later this year. SZSE will follow shortly, and both exchanges will be ready by the end of 2007.

However not all members will be ready or are willing to embrace STEP from the beginning. Large brokers and asset managers and those with foreign involvement will be the first to accept the new protocol. Smaller brokers and those in the process of restructuring are hesitant to accept and deploy STEP.

Concerns remain among some of China’s market participants about STEP, specifically with regard to performance in handling order volume, reliability and local support. So NGTS will provide direct market access (DMA) in parallel through two protocols, one being STEP and the other being the SSE’s current proprietary exchange protocol.

As a logical consequence, market data will follow, in FIX compatible format, once NGTS has been released into production.

All of this will happen – in the best case scenario – in time to coincide with Qualified Foreign Institutional Investors (QFIIs) successfully pushing China to allow DMA from overseas.

Rumour has it that a few of the QFIIs are already preparing for DMA into the Chinese markets, which represents no technical issues, but has not legally been deregulated. For Chinese domestic brokers and asset managers (regulated differently from foreign QFIIs) DMA is legally possible. However, SSE’s exchange members are required to separate reports to regulators for domestic and foreign order flow and hence QFII orders need to stop at the local executing brokers’ desks.

The writing is on the wall!

It used to be said that when US markets sneeze, Asian and European markets will get the flu. However, this might change. The sharp drop in China’s markets in February could be a portent: for the first time in decades, US markets suffered a drop caused by another country’s exchange, and not vice versa. We might have passed a historical turning point, and China’s exchanges seem to be preparing to take on the challenge.

Filed under: Asia, China, Exchanges, FiNETIK Articles, FIX Connectivity, Indonesia, Library, Malaysia, Thailand, Trading Technology, Vietnam, , , , , , , , , , , , ,

Letter from Hong Kong

Last week’s Inside Market Data Asia conference should make vendors sit up and think. Not only is Asia growing in leaps and bounds (and not just in China and India), but it is crying out for better, more suitable products. And it seems clear that they need both local and global vendors to supply them.

That’s because the local vendors can offer local data, timeliness and a deep understanding of the local market. The global vendors, though, have breadth of information and global resources on their side.

A panel of local and global vendors acknowledged this. Stephan Stadelmann of Finetik Partners says, “A global ! vendor has global coverage and a greater financial budget, but in terms of domestic needs is usually not as flexible as local vendors.”

Yet the panel agrees that local and global vendors can be complementary, especially-as Reuters’ Alex Hungate says-in local markets in which a big player might not want to compete.

From the local vendor’s perspective, says Stephen Lai of Singapore’s NextView, “you can’t grow in Asia without [working with] global vendors,” especially if the local vendor wants to move beyond its home market.

In addition, they agree that Asia is a fragmented market, and vendors can’t apply a one-size-fits-all strategy (an issue that was also discussed by the last panel of the day). As Darren Bishop of Tullett Prebon Information says, in the past, vendors based their Asian strategies on Japan. But, he points out, the Japanese market is completely different from, say, the Chinese market. Now vendors are beginning to understand that.

Another theme that developed at the show is a global one: information is useless if it’s not delivered or packaged in a useful way.

In the morning keynote, Micah Green, president of the Bond Market Association, says that while there is more and more data available-thanks to business scandals, customer demand, technological developments and globalization-the key is making it useful.

For example, he cites one firm whose second-largest expense is its Bloombergs. But those Bloombergs are sacred, because they don’t simply deliver data-they are communications tools, as well as being used for analytics and processing. Green says Bloomberg’s competitors have begun to look at and market their products differently, to show how they can support a user’s business.

This trend is also being driven by increased transparency, which has in turn lowered profit margins on trades. “How do you raise your profits?” Green asks. “You have to reduce your costs.” As a result, firms are applying technology to their data to improve processing and risk management, which then lowers costs and improves profits, even when margins are falling.

S. Swaminathan, CEO of Indian vendor Iris, echoed this theme in his afternoon address. Vendors need to take their data and develop applications around it to serve their customers. “[They say] there’s an information overload,” he says. “There’s not too much information; it’s, ‘can you give me the information I want, how I want it and when I want it?'”

Swaminathan suggests that both local and global vendors apply this advice, particularly to India, which is expecting a huge inflow of domestic investment over the next five years. He notes that this is also a great opportunity for Indian companies and the Indian people: “Until now, we were a factory for the world, we never met the customer, so the benefits flowed to someone else. Today, we are working with the customers.”

By Samara Zwanger
Source: Inside Market Data: November 21, 2005 Vol 21 No9

Filed under: FiNETIK News, News, , , , , ,

FINETIK Partners – appointed as Regional Representative for MetaBit in South East Asia

Tokyo, JAPAN – October 4, 2004 — MetaBit (Japan) officially appointed FINETIK Partners (Singapore) as its Regional Representative for South East Asia on 4 October 2004. MetaBit’s representation in Singapore portrays a strategic milestone, allowing FIX based equities and derivatives trading through connectivity access points between Asia’s major financial centers.
This representation in Singapore supports MetaBit’s aim to expand its hedge fund client base in Singapore that trades Direct Market Access (DMA) with MetaBit’s connectivity tool, XiliXTM. Through XiliXTM, hedge funds and asset managers connect to MetaBit’s FIX hub in Tokyo, where traders access multiple brokers registered on Tokyo Stock Exchange (TSE), Osaka Securities Exchange (OSE) and JASDAQ.

‘MetaBit sees increasing demand from Singapore based hedge funds trading DMA into the Japanese market. This is combined with a growing interest inside Japan to utilise MetaBit’s FIX hub and trading tools to place orders from Japan into the Singapore Stock Exchange via its broker members.’ Said Daniel Bürgin at MetaBit. ‘Japan’s revitalised economic environment has its investors looking for investment opportunities outside Japan. Singapore is one of the key markets in South East Asia, and we get demand for Japanese online brokers, securities firms and institutional investors to connect through our Tokyo data centre.’

‘MetaBit is emerging as a key connectivity hub provider for FIX enabled equities and derivates trading from Japan to other strategic Asian markets.’ Confirms Stephan Stadelmann, appointed Representative Director for MetaBit and Managing Partner of FINETIK in Singapore. ‘We are very pleased to complement MetaBit’s product offering by opening to MetaBit our vast network of client contacts in Singapore and other Asian markets. These contacts range from institutional investors, to securities firms, and also exchanges.

Filed under: Asia, China, Exchanges, FIX Connectivity, Japan, Malaysia, News, Singapore, Thailand, Trading Technology, Vietnam, , , , , , , , , , , , ,

MetaBit and FINETIK partner on FIX trading solutions for China’s Securities Industry

Tokyo, 16 February, 2004 – MetaBit, provider of MetaXLTM, the FIX enabled multi-broker hedge fund trading tool, today announced a strategic partnership agreement with FINETIK Partners, Singapore to introduce FIX enabled order routing and trading services for China’s securities industry. Key focus is given to the exchanges of Shanghai and Shenzhen. The two companies combine their strengths in specialised consulting services for operational risk and risk management with new technology solutions to help securities firms in China to address operational control combined with increased efficiency on trading life cycles for China’s brokers that cover a nation-wide branch network. MetaBit, who specializes in equities trading solutions for the financial industry, has commited to localise its trading solution MetaXLTM to the Chinese market. FINETIK has obtained the rights to resell MetaXLTM in China directly or through its affiliated partners.

MetaXLTM is a scalable real-time trading and order routing system that is FIX (Financial Information eXchange) enabled and greatly helps its clients to streamline Straight-Through-Processing (STP) of equities products. At its core sits a residual database that records any transaction of a trading life cycle. This database can be efficiently leveraged for interfacing to risk management, position keeping and settlement systems. MetaBit has an established client base in South East Asia and Japan.

MetaBit’s products and FINETIK’s consulting services promote STP and operational control for securities companies and fund managers in China. MetaXLTM’s remote installation through internet download and leverage of secure Internet VPNs (Virtual Private Networks) will facilitate China’s brokers and fund managers to support a state-of-the-art trading and order routing application with limited support and investment costs. This drastically reduces transaction processing time, setting the foundation for shorter settlement cycles and improving risk management and operational control towards China’s regulatory bodies.

The partnership with FINETIK allows clients in China to access MetaBit’s support services through FINETIK as well as their FIX-based consulting services for integration, training and re-engineering of business processes. FINETIK was selected to partner with MetaBit due to their experience in China’s securities markets and local partnership network. FINETIK provides specialised data management consultancy to the Shanghai Stock Exchange and other Stock Exchanges and financial institutions in South East Asia. It is of FINETIK’s speciality to combine their expertise with the introduction of practical solutions to their clients, by means of promoting specialised products such as MetaBit’s MetaXLTM to their clients. FINETIK’s unique approach to consulting services leads to effective operations, accountability and reputation in the financial industry as clients receive integrated solutions from consultancy to product implementation, tailor-made to their needs.

“MetaBit is confident that MetaXLTM will be a value added service to brokers and fund managers in China,” said Daniel Bürgin, CEO of MetaBit. “MetaBit’s technology that embraces the FIX protocol and secure internet communication allows a fast growing market in particular to deploy the product across a nation-wide network of branches without physical interaction. Investments in infrastructure and support to maintain a vast client and branch network is minimal. The product’s user interface is double-byte and currently being localised to Chinese with full integration of Chinese equities products in early 2004. Expertise with existing clients trading real-time long/short equities strategies across Asia through secure Internet VPN gives MetaBit the confidence to offer a scalable solution to China’s financial industry, addressing their specific need to increase trading efficiency as well as introducing better controls on trading activities. ” Mr Bürgin closes his statement saying, “MetaXLTM will bring equal benefits to China’s regulatory bodies, brokers and fund managers alike. ”

“FINETIK has proactively engaged itself in China already before the recent attention/hype on China’s economy. FINETIK has built its trust in China and South East Asia by its professionalism and commitment to service the financial industry. Our specialist know how has proven successful as shown by FINETIK’s track record with stock exchanges, regulatory bodies and securities firms in China and South East Asia,” said Stephan Stadelmann, Partner of FINETIK. “Part of FINETIK’s success is our strategy to liaise with innovative and reliable partners that complement our consultancy services with specialist products that help manage our clients’ operational risk controls proposed by our firm. MetaBit and its MetaXLTM order-routing and trading product matches our company philosophy. FINETIK sees particular potential for the product with regards to China’s financial industry’s needs on operational control and increasing efficiency on trading cycles and Straight-Through-Processing. The modern technology and Chinese language capability combined MetaBit’s philosophy of white-labeling and virtually no upfront investment costs, makes MetaXLTM particularly interesting for the Chinese market. Securities houses and fund mangers could jump the evolutionary curve of IT investment by utilising this product to become FIX enabled without major systems overhaul and hardware upgrades. An important road-show by FINETIK jointly with MetaBit will introduce the products to the exchanges, regulatory bodies as well as brokers and fund managers. The partnership is a stepping stone for both companies to build its businesses in China by leveraging each others strengths and expertise.”

About MetaBit: MetaBit is a privately owned technology company established in 2000, focused on development and support of specialized buy side trading applications that provide multi-broker connectivity into various equities markets. MetaBit is also specialized in FIX consultancy. MetaBit’s flagship product, MetaXLTM is targeted at hedge funds and asset managers trading into Japan and other Asian markets, regardless of geographical location. Clients are based in Japan and South East Asia, and consist of renowned buy and sell side institutions.
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About FINETIK: FINETIK Partners is an information management consulting firm established in 2002, specialized on data strategy, architecture, risk and audit for the financial securities administration and operations in Asia. FINETIK services are focused on practical solutions in operational effectiveness and risk mitigation in use of financial data for back/front offices, asset management, exchanges and data vendors. Clients are based throughout Asia and consist of renowned institutions.
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Filed under: Asia, China, Exchanges, FiNETIK News, FIX Connectivity, Japan, News, Singapore, Trading Technology, , , , , , , , , ,