Asia-Pacific Boosts Market Infrastructure

Terry Flanagan

Financial markets in the Asia/Pacific region are modernizing their trading infrastructure to accommodate more transactions and demand for low-latency platforms.

The Stock Exchange of Thailand (SET) and its derivative arm TFEX recently replaced its entire technology platform for derivatives trading, and promptly recorded its second-highest daily number of contracts traded.

This comes on the heels of a similar technology replacement for equities trading. The Stock Exchange of Thailand selected Cinnober Financial Technology, a supplier of financial technology to marketplaces and clearinghouses, to replace its trading infrastructure.

“I thought that the first day should be a little bit slow, but it was the second-best day ever,” said Cinnober CEO Veronica Augustsson. “It’s interesting because it also follow the trends when we implemented the equity trading system, where they also traded a new record in volume.“

SET performs both equities and derivatives trading on the same system, SET Connect, which is based on Cinnober’s TRADExpress Trading System. Trading on equity markets has been in production since September 2012.

“A comprehensive and flexible system solution is very much decisive for being able to maintain a leading market position,” said Charamporn Jotikasthira, SET president, in a statement. “New conditions and regulations require transparent and reliable technology. Cinnober has contributed invaluable know-how and experience in the build-up of this new platform, based on an international standard solution that has been adapted for the Thai market.”

Cinnober has delivered several core systems to SET since the agreement was signed in June 2011. Phase two, covering the derivatives market, includes functionality for trading, market data, and surveillance.

“Asia is a growth area for technology because they are in the forefront of some of the new regulations,” said Augustsson. “If you look at the stock exchange in Thailand, now they have trading systems for equities and derivatives in the same instance. Even though it seems very logical and something that everyone would have, it’s extremely rare that people have that. It creates value for the customers.”

The same systems that power equity exchanges can be used to power derivatives exchanges, according to Augustsson.

“It doesn’t matter what asset class you’re trading,” she said. “From an exchange point of view the systems are very similar, whether you’re trading equities or commodities.”

Separately, a study of post-trade processes in Asia/Pacific has revealed varied levels of automation in post-trade processing for equity and fixed income trades across the region’s markets.

The study, published by InsightAsia Banking & Finance Consulting, a division of InsightAsia Research Group, found that reputational risk, the need to comply with increasing regulation and cost reductions are the key drivers for lifting automation levels.

Almost 95% of market participants believe improvements are required in post-trade automation, according to the research. “The region’s financial markets feature varying levels of maturity in post-trade automation, which can have a direct impact on their ability to manage higher trade volumes and satisfy compliance requirements,” said Matthew Chan, regional director of strategy at Omgeo, in a release. “Managing operational risk associated with the trade matching process is essential to ensuring financial market safety and integrity.”

Despite a growing awareness of the benefits of automation, there are major disparities in the levels of adoption and sophistication between asset classes and firm types. Overall, the level of middle office automation is rated at 71% for equities and 55% for fixed income but country-by-country variations also exist, with Australia exhibiting the highest automation levels at 88% for equities and 69% for fixed income trades.

Featured image via Dollar Photo Club

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