Third Party Technology is Crucial to Deliver Competitive Low Latency Infrastructure in Fragmented APAC Markets, According to GreySpark Partners

Hong Kong - 19 July 2012

  • Strategies that reduce network latency seen as game-changing
  • Consultancy finds that all major APAC exchanges have embarked on technology projects

GreySpark Partners, the capital markets consultancy with offices in Hong Kong and London, has published a research report on the Asia-Pacific markets that highlights the maturity of low latency offerings in the region and describes what market participants need to do to remain competitive.

Low Latency in Asia-Pacific: an Infrastructure View” explains that due to market fragmentation in APAC, along with regulatory complexities and the sheer physical distances between trading venues in the region, a deep understanding of the markets, combined with a unrestrained infrastructure and equipment that is advantageously co-located, is crucial to enable low latency.

The research also highlights the growing importance of electronic trading in the region. All major exchanges in Asia-Pacific have upgraded their trading platforms in recent years, or have plans to do so. At the same time, trading platforms are becoming more standardised, with many of the upgraded platforms using low latency white-labelled technology from the global exchange software providers. As a result, market participants wishing to remain competitive need to be proactive and adjust their technology roadmaps accordingly. Latency – best defined as “the total elapsed time between the event, or signal, triggering a trading decision and the actual completion of that trading action” – if reduced, can provide an advantage in trading outcomes and is therefore a means of remaining competitive.

APAC has developed into a very different region from Europe and the US in terms of market structure. There are nearly 50 exchanges, 16 of which are members of the World Federation of Exchanges. The report also points out that APAC is expected to be the main equity growth area before Europe and the Americas, while Hong Kong is also seen as one of the most liberal markets in the world to do business.

“Asian markets are undergoing a paradigm shift as they mature and grow, and are quickly becoming important trading venues,” said Andrew McLauchlan, Managing Director of GreySpark’s Asia-Pacific operation. “Rising competition, particularly in electronic trading, which has become the de-facto trading method at multiple venues, has meant that pursuing a successful latency strategy is key. For APAC, where distances are greater, the network latency can play a key role in the overall latency. A well-thought out equipment colocation strategy, therefore, can be a game-changer.”

GreySpark also explains how the mélange of regulation across APAC has led to complexities in trading in the region. Despite offering more favourable growth prospects than the US and Europe, APAC’s regional differences that should be taken into account when building an investment strategy. Some jurisdictions are relatively heavy-handed and protectionist when it comes to regulation, compared to the other financial hubs in the region. As a result, firms are being very selective when it comes to developing an investment strategy, and subsequently, a technology strategy in APAC.

McLauchlan added, “Importantly, latency strategies need to be considered together with time to market, agility to adapt, cost of deployment and running costs. In APAC, for cost reasons companies are not collocating in all the exchanges and venues, but are being far more selective, choosing only key markets, where the local regulatory environment is favourable. Additionally, we have found that even the most savvy low latency pioneers are beginning to use third party or service providers to ensure specialisation.”

The research findings are based on GreySpark’s experience in working on technology projects specifically on trading infrastructure with clients based in APAC and also globally. The research also reviews the technology offerings of the major regional exchanges.

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