Opening Cross: Vendors Eye Transparency in Emerging Markets


Just when I thought it was safe to go back in the Western Hemisphere after our Hong Kong conference, this week's stories still seem to have a distinct Asia-Pacific theme. Maybe it's just that this weekend's Formula One grand prix is taking place on a brand-new circuit in Korea - home of the world's most-traded derivatives contract - or perhaps it simply reflects that, just like the Formula One authorities, the financial markets still see Asia as an important growth area.

Need proof? Check out the extended cooperation between Nasdaq OMX and the Singapore Exchange (also in the news for a rumored merger with the Australian Securities Exchange) to list American Depository Receipts and allow companies to dual-list on both exchanges, which officials say will benefit US firms with a strong brand and active presence in the region.

But how does one gain a strong brand in the region? As panelists at our conference said, one way is to partner with an already-strong brand - such as when creating exchange-traded funds or structured products based on a well-known index. Another strategy, as any celebrity who hangs out in a Formula One paddock will tell you, is to make special efforts to see and be seen by your target audience. For example, to help drive growth in Asia, Markit has sent co-founder and managing director Tom McNerney to Singapore to head the vendor's business in Asia-Pacific.

Like many others, Markit realizes that the region is ready to expand, is hungry for data, and in many ways is under-served compared to other markets - which is something the vendor hopes to capitalize on with new end-of-day price snaps for the Japanese market. With regional markets already looking towards central clearing of credit derivatives, credit default swaps are now considered "safer" than before, and investors who may have shied away from these instruments in the past are now showing more interest in them for trading and hedging, says Marc Barrachin, director of credit products at Markit.

However, there are still transparency challenges in the Japanese debt markets. For example, Barrachin says, many companies are intertwined through complex series of private loans and shareholdings in other companies for which there is no public information to create a price. Even if the vendor were to price such loans, they would only be of interest to two parties - those on each side of the loan.

Standard & Poor's is also targeting the Asian credit markets, by adding data on 45,000 bonds from 12 countries across the region to its reference data platform, to serve as the basis for more comprehensive evaluated pricing services and fixed income analytics for Asian clients. The data collection process is a massive effort involving separate data collection and validation teams in Taipei, Melbourne and India, where the vendor is using rating agency Crisil to collect data. Again, a local presence is a critical aspect of making this service work, according to Marc Anthonisen, managing director of data solutions and operations for Asia-Pacific.

Meanwhile, interdealer broker GFI is actually taking a product originally developed for an Asian audience, and expanding its content in preparation for a rollout to clients in Europe and the US. The broker's Index Implied Volatility service was originally launched in 2008 for Asian indexes, but the firm is now adding options on benchmark international indexes and is seeking distribution partners to expand the service's reach. Surely others will adopt this model as Western economies recover from the financial crisis - make an impact with new ventures in emerging markets, before taking them to markets emerging from the impact of their own adventures.

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