Opening Cross: Will Asia's ‘Complex Tapestry' Weave More Success?


If this week's issue contains a little more Eastern promise than usual, it's because we're in Hong Kong this week to host - along with industry association FISD - our annual Asia-Pacific Financial Information Conference. And this year's event promises to be a real cracker, with many of the trends seen in the US and Europe now playing out across the Asia-Pacific region.

Fortunately, this doesn't include some of the worst trends. Asia remains a growth story, while the West still inches nervously towards recovery. Over the past couple of years, the economic crisis may even have contributed to Asia's steady growth, as traders and investors frustrated with the risks of "safe" investments in the US and Europe sought out higher-risk markets that deliver better returns.

But it isn't just an influx of Western cash and traders trying to make up for depressed margins elsewhere that is dictating the evolution of the pan-Asian markets-in fact, according to research firm Tabb Group, many of these markets are essentially closed to Western investors. Instead, these markets - a diverse cluster of cultures spread over huge distances - are observing the West's struggles with issues like fragmentation, cross-border arbitrage and low-latency trading, and are replicating these locally.

For example, the Tokyo Stock Exchange's Arrowhead trading platform that launched at the start of this year has had a huge impact on latency and data volumes in its domestic market - so much so, in fact, that some trading systems are having trouble dealing with the deluge of new data being generated, prompting SunGard Global Trading in Japan to partner with complex event processing technology vendor StreamBase Systems to help its clients build trading applications capable of processing high volumes of low-latency data, such as those now being generated by TSE.

Another instance where Asia is tapping the West for expertise is the trading link being developed by four ASEAN (Association of Southeast Asian Nations) exchanges, which earlier this year enlisted NYSE Technologies as its technology partner, outsourcing the heavy lifting to a company with experience of connecting markets and consolidating trading and datafeeds on a single platform.

(Asia outsourcing to the West? Not the other way around?)

Meanwhile, other initiatives are capitalizing on the appetite for the greater competition that can be achieved through fragmentation. One of the first in the recent swathe of projects was the New Zealand Exchange-backed AXE ECN, designed to compete with the Australian Securities Exchange, though this has been largely eclipsed by Chi-X's entry to the region with Chi-X Japan, Chi-X Australia, and the Chi-East dark pool, which received regulatory approval last week, clearing the way for the new venue to begin trading a range of pan-Asian stocks. Chi-X has experience of taking share in fragmenting markets, having done so in London and - to a lesser extent - in Canada.

In addition, Deutsche Börse is actively investigating the Asian markets with a view to launching a local version of its AlphaFlash feed of macroeconomic news for traders whose strategies depend on being first to interpret economic announcements and predict their impact. However, this raises another issue. While we blithely refer to "Asia" as a region, each country is separate, with its own exchange (or multiple exchanges), with no single currency or regulatory structure - a "complex tapestry of regulatory, currency, tax and technological hurdles," as Tabb Group puts it.

This will make it a challenge for these new initiatives to come to fruition as rapidly as they could in the US or Europe - but it's going to be fascinating to watch it all happen.

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