In late March GlobalTrading hosted a roundtable in Kuala Lumpur to examine the best practices for electronic trading in Malaysia. Attended by Bursa Malaysia, the Securities Commission Malaysia, and a range of local buy-side and sell-side firms and with attendance from regional FIX Trading Community members, the event focused on the changing nature of electronic trading in the region, how Malaysian firms can capitalise on regulatory changes in Singapore and Hong Kong, and new technology being made available to the region.
With electronic flow already between 30-40%, Malaysia is firmly established in the electronic trading arena but, when compared to developed markets in the region which see 70-80% electronic trading volume, there is clearly still a lot of development potential. New technology will be at the forefront of such development, as increasing foreign flows look to access Malaysia’s markets.
One key alignment needs to be made by domestic firms with their regional and international partners, as flows increasingly move both from Malaysia throughout the region, and as funds look to enter Malaysia; facilitating standardisation of technology and increased electronic capabilities are essential to allow this increase in business. This needs to happen in both the front office, with clean reliable market data and proper risk controls, and the middle and back offices.
Reform needs to be driven within firms as well, as systems need to reflect changing market practices around STP and risk control. A general trend across the financial services industry is that each market participant is much more responsible for their own trading and technology – the burden is moving onto the buy-side and vendors, and not just sitting with the brokers, and this needs careful management within firms to ensure that pre-trade risk is managed correctly.
One thread throughout the panel discussion was that change takes time and effort – no firm can change institutional habit and technology overnight, so firms need to make sure that they are prepared for future challenges before they arise. In a market like Malaysia that means balancing the local environment and specific nature of the retail/institutional mix and foreign flows with regional and global trends.
Regional regulatory reform, such as the algorithmic regulation in Hong Kong, and the T+2 shift in Singapore, will also have an effect in Kuala Lumpur, and firms would be wise to look ahead to potential regulatory change.
The major takeaways from the event were focused on the infrastructure of attendee firms – don’t rely too heavily on a single vendor for software or market data. Transparency is a global trend, and firms are wise to begin opening up to ensure that regulators and clients alike are aware of changing requirements. This feeds into a continuing trend around unbundling of services, which while still slow on the uptake in Asia will continue to grow. Malaysia is well placed to continue to grow as a regional market, but it needs to be aware of changes happening in Hong Kong and Singapore, and make sure that technology is standardised and compatible to ensure maximum market growth.
