By Stephanie Lawton
FIXGlobal Face2Face forums were born of a desire to move away from salesfocused conferences, and towards real dialogue within the industry. The events are about education, experience sharing and critical assessment, of the development of electronic trading on a local, regional and global level. This month Face2Face hit Shanghai, and judging by the lively Q&A sessions that followed a full day of expert speaker sessions, China is more than holding its own in the electronic trading debate.
Another invitation to another conference pings into your inbox. The speakers have fabulous titles and an alphabet of letters after their name. The event promises to change the way you look at global markets, regional markets, and everything has a China angle. And yet, how many conferences end up feeling like sales pitches. And, in the spirit of honesty, how often, have we all witnessed a guest speaker’s presentation which has had a pretty solid chunk of sales-speak at the beginning, middle and end? Fast forward to Shanghai where, earlier this month, approx 180 people from the local and international financial community gathered together to debate the role of electronic trading in China at the FIXGlobal Face2Face. Almost two thirds of the vocal audience was from the buy and sell-side of the trading industry.
Don’t throw the protocol out with the vendor
Kicking off with an up-to-the-minute review on electronic trading trends and innovation were Citi’s Grace Lin and HSBC’s Gavin Williamson and Alan Dean. Of particular interest was the perspective of the speakers on the key drivers for asset manager, brokers and exchanges looking to develop or upgrade their electronic trading and FIX capabilities. A flurry of questions followed, with one brave individual suggesting the FIX messaging was too slow for the current high frequency – low latency environment. Alan Dean provided the most categorical answer… “Then you need to re-look at your vendor, as with FIX we are talking low micro-seconds.” Nothing like being put straight!
View from the Exchanges
Next up was an update on the development and implementation of FIX STEP/FAST at the Shanghai Stock Exchange (SSE). CTO of the SSE, Bai Shuo described the protocol as a variant of FIX, adapted for the local market. This streamlining – taking out aspects not relevant to the local market and adding in those the industry wanted – were essential to promote the protocol effectively to its users. A look at performance data of FIX STEP/FAST left other delegates in no doubt that Shanghai was poised to provide scalable capabilities that would attract a broad range of market participants.
Eric Yip, Head of Cash Markets for Hong Kong Exchanges and Clearing Limited, shared some updates on the global developments and regulatory issues concerning electronic trading and some of the lessons learned. Mr. Yip noted that changes in the Hong Kong marketplace would have to be driven by market demand and regulatory guidance. He also affirmed HKEx’s commitment to continuous improvement in market infrastructure. Along those lines, HKEx recently become a member of FPL and is assessing the pros and cons of adopting FIX Protocol for their cash market.
Turning the spotlight on China
Focusing in on China, a panel of technology experts debated the exploitation and implementation of existing and evolving technology tools. A discussion on ‘build or buy’ lead into a heated debate on the role of foreign vendors in the China market, with the conclusions offered by the panel leaving vendors in the audience with both hope and a little trepidation. BNY Melon Western’s Jack He reiterated that the industry remains closely regulated and that many existing systems are entrenched. For international vendors new to the market, being realistic about their commitment in terms of resource, time and experience of the market, was essential. PICC Asset Management’s Shong Gao urged even more caution. Foreign firms, he said, could not expect to use their existing products as cash cows in China. They needed, he added, to be prepared to adapt them for the China market, and to understand the costs and timeframes involved.
Turning to comparisons between the SSE, Hong Kong and NYSE markets, Deutsche Bank’s Kathryn Zhao used trading data to compare volatility characteristics from the three exchanges during the recent financial crisis. The statistics painted a fascinating picture of impressive liquidity and relative lack of volatility on the Shanghai market.
Innovating from within?
Looking to the future, Deutsche Bank’s Mark Maloney lead a discussion with experts from international sell-side firms pitted against local buy-side professionals on opportunities ahead. Head of Dealing at China International Fund Management, Michael Wang pointed out that direct market access (DMA) has worked in China for many years, but that capacity risked being an issue in a brokerless environment. RBS’ Andrew Freyre-Sanders agreed saying that, as well as providing breadth of product, the brokers can also take on some of the risk that pure technology vendors cannot. The consensus among the panelists was that algorithmic trading would be among the next steps in China. Wang said he aimed to have his first algorithms up and running shortly, but cautioned that additional work within the exchange, and so they are looking at the next three-to-six months.
A demonstration of algorithms at work by Shen Tao, Sales Manager for Institutional Sales and Trading, at Guosen Securities, one of China’s largest broker firms, (with 50 million accounts on their books) clearly showed the potential for algos in the market. Another illustration of the relative maturity of the market was that one of the highlighted algorithms had been created using the algorithmic trading definition language (ATDL) developed through FIX Protocol Ltd (FPL), which is still under testing elsewhere.
The conclusions from the final panel and the majority of expert speakers throughout the day, was that an efficient exploitation of electronic trading and FIX capabilities would happen rapidly in China, with the domestic market being driven both by innovation from within and outside the country.
For details on the next Face2Face event, please visit www.fixglobal.com