Asia "Looks Like U.S. Ten Years Ago" - Chi-X Americas
March 5, 2010
Exchange operators trying to compete for business in Asia will find "a complex web of individual jurisidictions each with it own nuances,'' according to Tal Cohen, chief executive officer of Chi-X Americas.
There is no overarching "regulatory catalyst" in Asia that will foment competition among increasing numbers of trading venues, as there was with the Markets in Financial Instruments Directive in Europe, Cohen said Thursday.
Chi-X Americas includes the Chi-X Canada alternative trading system (ATS), and is part of Instinet Group. Chi-X Europe operates the largest pan-European multilateral trading facility to emerge since the introduction of Mifid in 2007.
"The struggles we face in Asia," in competing in Asia " is that most of these exchanges are vertically integrated. They own the client facility. They are very tied in to the regulator. In some cases, they are the regulator,'' Cohen told a gathering of roughly 100 Wall Street executives at the U.S. Equity Forum, hosted by Real Time Systems, a Frankfurt-based provided of electronic trading and front office systems.
"So it very much reminds some people across the room here, probably, of what the United States looked like 10 years ago, maybe even longer than that," Cohen said.
Rules designed to modernize and strengthen the U.S. market system for equity securities were combined into Regulation NMS in 2005.
Cohen does not foresee a similar effort with continental impact like Mifid in Europe or Reg NMS in the U.S. happening in Asia. But he did say "regulatory competition" was already occurring across the Pacific.
"Different regulators across that region are looking to be the gateway for Asia and they are trying to capitalize on the Asia story,'' he said. "We see that as a positive trend. We see that as leading to some public policy reforms and an open mind towards competition."
The Tokyo Stock Exchanges' recent introduction of its high-speed Arrowhead trading platform shows, for instance, that Japan has "really come of age" and will be competing for the kind of order flow that has come to Europe and the U.S.
Latency has dropped from two to three seconds in executing an order, down to five to 10 thousandths of a second, he said. Perhaps not coincidentally, Chi-X Global has applied for a license to operate a proprietary trading system there.
But Cohen said that competing with incumbent exchanges will be a bit different than in the U.S. or Europe.
Last August, Chi-X® Global Inc. signed a "heads of terms" agreement to develop and launch the first
exchange-backed dark pool in the Asia-Pacific region. It did so in a partnership with the Singapore Exchange.
"Anybody looking to go out to Asia and compete with the incumbents probably has to look at the buy and build side of the strategy, where maybe in the U.S. and Europe the tendency has been to build versus buy,'' he said.
"Just because you're in Asia doesn't mean you're really in Asia,'' he said.
