Asian Markets Impose Restrictions on Direct Market Access Trading

While Asian markets have loosened some of their regulations and buy-side traders encounter several restrictions such as the need to register with foreign IDs.

"The markets track what the foreigners are buying or selling. As foreigners you have to be registered," notes Kevin Chapman, managing director and head of trading at Nicholas Applegate Capital Management.

For instance, Asia has ID-driven markets that identify foreign institutions, so there is a loss of anonymity. India, Korea, Taiwan and China require foreign investment IDs to trade into them. "What they have allowed us to use is a broker's ID or for one to create an umbrella ID for our own firm and that has made it easier to use electronic trading," says George Molina, SVP and director of Asian Trading for Franklin Templeton Investments in Hong Kong.

In Korea, the regulator has allowed for Omnibus IDs as well. This allows the fund manager to access the market via DMA using their Omnibus registered account, then on the back-end it would allow for booking out each individual account ID, Molina explains.

In Korea, where there is DMA since last year, the exchange is allowing the fund manager to access DMA using its own ID, Molina explains. "When trading blocks we can use the broker's ID. When trading individual accounts, then we use our own ID for efficiency purposes," he adds. But this interrupts DMA. "It's not a straight through seamless function if someone has 100 accounts, then each account has to transmit its order individually for their ID to be obtained," says Molina.

In Taiwan there are pre-funding requirements for certain accounts and restriction of capital flows in and out, says EVP and head of global trading at Franklin Templeton Investments.

Also, "Taiwan is continuous crossing market."It isn't DMA-oriented such that when you see something on the screen and you can take that offer or hit the bid," says Gulley. Every 20-to-40 seconds the stock goes through a crossing algorithm and the stocks are matched. During the 20-40 seconds, nothing happens, he says. While that was considered superior technology ten years ago, the rest of the world has moved to a more of a dynamic trading platform, he says.

Templeton's Molina notes that for the longest time Taiwan have en forced brokers to check the customer's account for cash and holdings. "It's not direct DMA," says the Hong Kong-based trader. "It's a one-touch solution, which routes orders to the sales trader who has to verify whether the account has the securities or the cash, so you lose the anonymity," he says. Meanwhile, Korea has an ID system, but it is opening up the markets to algorithms based on an umbrella ID.

The same is true of Thailand, which has DMA but it's one-touch, so the buy-side "loses the anonymity because the order goes to the desk of the broker and then to the exchange and someone has to literally hit the button," he says.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio