I created this video while I was in Hong Kong last week for Trading Architecture Asia. The audio isn’t that great unfortunately, so we’ve transcribed the commentary which you see below (its also on TabbFORUM).
…and the transcription:
This week I’m in Hong Kong for Trading Architecture Asia 2010.
If it’s a sign, almost every session in the morning has been standing room only, so there’s certainly a big focus from exchanges, buyside firms, sellside firms and technology providers all across Asia on low latency trading and low latency infrastructure.
One of the main focuses has been on the Singapore exchange. They’re building out a tremendous new co-lo facility and co-lo offering. They’re also in the midst of creating a matching engine that’s supposed to be one of the fastest in the world – down to 90 microseconds – to match an order. That rivals most of the exchanges in the U.S. and Europe.
Japan also continues to be a focus area in terms of low latency trading. The Tokyo Stock Exchange’s new Arrowhead trading platform has tightened spreads and driven up volumes – and has been quite successful. One interesting point: before Arrowhead, it would take 300 milliseconds to execute an order at the Tokyo stock exchange. If you were a trader in Tokyo, it was actually faster to send your orders over to New York through fiber optics and execute at a New York exchange than it was to execute locally in Tokyo because the matching engine was so slow. So clearly this development, this new matching engine at the TSE will help them considerably.
There’s also a lot of fragmentation talk going on in Tokyo and in Asia as a whole. Chi-X, among others is looking to create not only new liquidity pools in Tokyo but pan-Asian liquidity pools. So we’ll have to see. That’s early stages but certainly causing the incumbent exchanges to pay attention and increase their strategies.
Lastly there’s been quite a bit of discussion around the markets in India. Cleary this is a big, big economy with huge potential. Both the Bombay Stock Exchange and the National Stock Exchange of India were here at the conference talking about their offerings and their approaches.
The National Stock Exchange of India is the market leader right now but the BSE is coming up close and trying to take market share back from them. There was just an announcement from the regulators in India that smart order routing is allowed and now acceptable, so that’s a huge step forward. Algo trading will grow and both the NSE and BSE will allow colocation as well, so there’s considerable competition there.
One thing that I found interesting, one of the other rules that was just passed India is now retail investors are allowed to trade over mobile phones. So on one hand we have colocation and ultrafast trading by institutional traders in India and on the other hand we’ve got retail investors in remote villages trading on mobile handsets. They also mentioned there’s quite a bit of trading that goes on via satellite. Satellite is at the opposite end of the latency spectrum where we’re talking somewhere between 800 and 900 milliseconds to execute an order via satellite.
The week in Hong Kong has been quite eye opening. Clearly there’s a lot of opportunity here. The East has been able to learn from the process that’s gone on over the past decade both in the U.S. and in Europe. It’s likely the 10 years or more it took for the U.S. to get to where it is will be shrunk considerably in the Asian markets. So within two or three years, the amount of low latency trading happening in the region across listed cash equities, options and futures and other derivative products is definitely set to grow.