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Into the Sifma Era | AML Software Landscape Consolidates and Expands | People Are Scarce Again | ATSs in Europe Follow U.S. Lead | Fragmentation's New Discipline: Liquidity Management | Asia Comes Around to Algorithms | Low Latency Not a Go-It-Alone Proposition
Asia Comes Around to Algorithms
June 18, 2007
Estimates of sell-side algorithmic trading vary. Celent, a Boston-based research firm, has said it accounted for 15 percent of Asia-Pacific order flow in 2006 and could reach 40 percent by 2010. Veteran analyst Sang Lee, co-founder and managing partner of Aite Group, also in Boston, said that algorithmic trading drives no more than 2 percent of trading through the entire Asian region. "We expect that number to hit 16 percent by end of 2010," he said. "Most, if not all, of the push into Asian algorithmic trading has been by large sell-side firms. And as in the U.S. market, the drive toward algorithmic trading adoption is being pushed largely by the sell side."
There seems no dispute, however, that algorithmic trading is growing in Asia, and at a faster pace than elsewhere.
Tabb Group of Westborough, Mass. has projected that algorithmic trading in the U.S. will increase 34 percent this year and will account for 24 percent of all U.S. equities trading by year-end. But in compound annual growth rates, Asia's 32 percent will outpace the U.S.'s 26 percent from 2005 to 2009.
"It's being increasingly adopted across the region by a range of organizations," said Gabe Butler, a sales director in Hong Kong for agency and executive brokerage Investment Technology Group of New York. Holding algorithmic trading back are "barriers such as an array of languages, different market structures and regulators, different opening hours of exchanges, varying market-order types and so on," he said.
There are also technology limitations. Even the region's biggest market, the Tokyo Stock Exchange (TSE), "needs more system capacity" before it can adequately accommodate algo trading, said Yumiko Manchu, an analyst in Celent's Tokyo office. TSE is in the midst of a major capacity upgrade after a series of system breakdowns in the last two years.
The promise of the Asian market has attracted major trading technology vendors, ranging from Trading Technologies International of Chicago to TradingScreen of New York. London's Fidessa Group early this year launched its BlueBox trading engine in Asia, which has already generated interest in Japan and Hong Kong--the region's leaders in algorithmic trading.
Diversified Demand
"We are certainly seeing a rising demand for algorithmic trading solutions from the sell side across Asia," said Simon Barnby, global marketing director of Fidessa. What's more, "the smaller and mid-tier brokers have wanted algorithmic capabilities too," he said. "BlueBox is targeted specifically to satisfy this demand, and one of its key features is that the implementation effort, time frame and costs for the broker are kept to a minimum."
According to local experts, brokers in the developed markets like Japan are the furthest ahead in adopting algorithmic trading. Recently brokers in other countries, like South Korea, are following suit.
"We have been using algorithmic trading in most of the markets throughout Asia," said Tomoyuki Teraguchi, head of the Asia equity division of Nomura International (Hong Kong), Japan's largest brokerage and part of Tokyo-based Nomura Holdings, whose agency brokerage subsidiary Instinet is becoming increasingly aggressive across the region.
