Singapore Gears Up to Adopt Sophisticated Trading Technology

11 September 2008

While highly sophisticated algorithmic trading has taken off in the rest of Asia, Singapore’s banks and financial institutions have been slow to adopt the technology when compared to their counterparts in Japan and Hong Kong.

Progress Software Corporation (NASDAQ: PRGS), a leading provider of application infrastructure software to develop, deploy, integrate and manage business applications, made this observation today at a world congress on derivatives, attended by more than a thousand arbitrage traders, brokers and proprietary houses.

Speaking at the Derivatives World Asia Congress, Mr Richard Bentley, Progress Software’s Vice President of Field Technical Services for the Apama division, said “A recent move by the Stock Exchange of Singapore to put a platform for high-speed trading in place will provide the catalyst for the adoption of algorithmic trading in Singapore. In addition, as more and more international players adopt the technology, the benefits will be very apparent.”

“We therefore expect regional and local financial institutions to jump on the bandwagon quickly in order to continue competing effectively,” he added referring to the company’s unique Apama application.

Algorithmic trading relies on computers to analyze and come to conclusions about market-based data, or news, and react by executing trades in milliseconds, before humans have even scanned the headlines.

One of the biggest barriers to uptake in Asia is the lack of localized algorithms, due mainly to the absence of local resources to undertake the complex development modelling, including assessment of the sentiment of news reports, price, volume and liquidity and the likely affects on those local markets.

However, banks and institutions in Japan and Hong Kong have already begun to develop their own localised algorithms, often bringing in foreign talent to enable them to trade in sub-millisecond timeframes and deploy new trading scenarios to better meet the increasingly sophisticated demands of their clients. Korea has also begun to invest in development.

“Algorithmic trading is in its infancy here, with the maturity of the concept varying among financial institutions,” said Mr Bentley.

“Local domestic players are less advanced than regional and international players. However this is set to change with the changing competitive landscape and the introduction of incentives by the SGX designed to attract algorithmic traders to Singapore,” he added.

As the SGX strengthens its position as an Asian gateway, the local trading exchange landscape is changing. On 7 July 2008, the exchange moved its securities market to a new, enhanced trading system to attract algorithmic and high-velocity traders.

Currently, according to SGX data, algorithms account for about 12 per cent of value traded in equities on SGX and 18 per cent in derivatives. Mr Bentley expects these values to rise significantly in the near term.

“In line with the evolution of trading execution globally, the responsibility of manual trade execution previously performed by traders will wane and be replaced by continuous monitoring of clients’ orders, maintenance and updating of the algorithmic trading platform to meet their demands. All signs point to Singapore adopting algorithmic trading,” he said.

Progress® Apama®, the leading platform for algorithmic trading and other event-driven applications in capital markets, hosted an Algorithmic Trading workshop at the Derivatives World Congress to address the important questions for algorithmic traders in order to use algos for best execution and, maximise returns for investors.

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