Max Bowie: Asia Tackles Data Cost, Co-Lo, Competition Concerns

Asia-Pacific remains the darling of the global capital markets as other economies continue to struggle. But, says Max, as the region matures technologically, inevitable issues around cost, competition, connectivity and regulation may gradually turn market participants’ attention elsewhere.

With a growth trend that most economies would kill for, more time zones than the US, and a combined exchange market capitalization approaching that of the New York Stock Exchange and Nasdaq put together, Asia-Pacific continues to be a destination for investment, creating demand for new technologies to support its market data needs.

This expansion is leading to consumption of more data and the need for greater access to sources, but accompanied by a realization that firms in the region must begin to implement cost management controls.

“The biggest change we’ve seen in the last few years has gone from growing revenue to maintaining our expenses line,” says Jeremy Green, global head of market data at Standard Chartered, which has achieved some degree of success by marrying its supply management and demand management functions, providing a clear picture of where the firm has growth and where it can reduce services, enabling it to reduce costs by 5 to 10 percent each year “without doing anything major.”

Consumption is also prompting firms to scrutinize the value and usefulness of each data source, says Mike Meaney, managing director at data management software vendor Cadis. “Once you have multiple feeds from multiple sources, you have the ability to understand whose data is causing more exceptions or faults,” he says.

However, a lack of competition among niche regional vendors can make it hard to substitute services for cheaper alternatives. “Asia is a little different from the rest of the world, because there are some local vendors with data that only they have—so it is difficult to look elsewhere to meet our clients’ needs,” says Miguel Ortega, market data engineer at Deutsche Securities Japan.

This lack of competition stems from the fact that international vendors can find it hard to crack the region, which remains loyal to niche local vendors.

Restrictions
The growth is also accelerating take-up of supporting technologies, such as co-location datacenters. Equinix recently unveiled its second datacenter in Hong Kong’s New Territories, while Hong Kong Exchanges and Clearing (HKEx) is readying its own co-location center for next year. However, partly due to the sheer geographical diversity of the region and the distances involved, and partly due to restrictive policies by some datacenter operators, these facilities don’t offer the same value as in the US, where markets are fragmented but highly concentrated geographically, with many venues hosted in the same datacenters, whereas some exchange venues in Asia-Pacific do not allow trading firms to cross-connect to other trading venues—even those sometimes hosted in the same building—making it hard to perform best execution or take advantage of different tick sizes on different markets.

Some suggest that regulation would open up access to facilities to allow firms to take advantage of the fragmentation being created by new trading venues. But whether or not regulation—itself a practical nightmare across the different countries and jurisdictions of Asia-Pacific—helps increase competition, it may also ultimately drive business elsewhere if it becomes too restrictive in the long run for those whose foray into Asia is driven by the higher risk and returns on offer. Indeed, other emerging markets such as Africa are already attracting attention.

Last month alone, index provider FTSE announced a new Kenya index series, developed with the Nairobi Securities Exchange to make the market more accessible to domestic investors and to attract capital inflows from overseas to grow its liquidity and market capitalization, while the Bourse Africa Ltd.—a pan-African commodity spot and multi-asset-class exchange backed by Financial Technologies—announced it will go live in the middle of next year.

But these markets will need to demonstrate their ability to deliver returns—and Asia will have to lose its current luster—before international market participants and vendors are likely to repeat the investment they’ve made in Asia-Pacific elsewhere.