Electronic Trading in Asia: the Pitfalls and Opportunities

The opportunities and challenges of electronic trading in Asia was the focus of a roundtable discussion sponsored by NeoNet Securities today in New York.Sang Lee, managing partner at Aite Group, was on hand to present growth figures and discuss the future of electronic trading in Asian markets. Lee pointed out that while more traders are looking overseas to Asia for opportunities, algorithmic trading has been slow to catch on.

But with the build up of infrastructure, the growing presence of bulge bracket broker-dealers and technology offerings, this is set to change in the coming years.

According to Aite research, the adoption of algorithmic trading in Asia is expected to jump from 4 percent in 2007 to 16 percent by 2010.

Lee explained that one of the key drivers for growth in electronic trading and consequently algorithmic trading in Asia will be the penetration of global broker-dealers in the local markets as U.S. clients look to trade internationally more and more.

In addition, wider spread FIX adoption in Asia and increasing exchange cooperation in the markets will also help to drive electronic adoption.

But Lee cautioned that the lack of sufficient market infrastructure to support electronic trading would first have to be overcome in order for real growth to begin.

Greg Treacy, executive vice president at NeoNet, said that while Japan is the second biggest market in the world, it is still one of the slowest. The latency and trading capacity will have to be addressed before electronic trading will really heat up in Asia.

Treacy added that electronic trading growth in Asian markets would most likely reflect the growth happening in Europe. While electronic trading quickly proliferated the U.S. markets he points out that the Asian markets are more disparate with different regulatory and trading requirements, similar to the pre-MiFID European climate.