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FIXGlobal speaks with the buy-side in China about the prospects for China’s equity market, IPOs and how new technology and competition will improve domestic trading.

GDP and Trading Volumes
The property market might continue to cool down in 2012, but it is not reasonable to expect the Chinese economy to shrink significantly this year because the Chinese government will allocate resources to other sectors of the economy. Because of the Lunar New Year effect, it looks as though Chinese Consumer Price Index (CPI) is heading upwards. Based on adjusted CPI, the property asset bubble is a political issue rather than an economic one. The Chinese government has pledged to continue monitoring property prices, and its strong fiscal position gives them various options in terms of how they address this situation. Trading volumes are expected to be much the same as 2011 and inflation should be heading downwards.

Major Driver: IPOs or Economics?
There has been a rapid increase in the number of IPOs in China, but the regulators are questioning the quality of some of the IPO companies. Of those companies newly listed in 2011, valuation declined quite significantly. Investors used to think an IPO was like a lottery – buying new shares virtually guaranteed a profit. Many investors did not consider the actual valuation and quality of the company, and many are now realizing that not all investments are worth their list price.

The Chinese equity markets are in a transition stage; they are moving from being somewhat amateur to being much more economic and investor-driven. There were instances of listed companies in one industry that changed industries after the IPO (often moving into property development) and occasionally changing the name of the company, leaving investors uncertain about their strategy and focus.

Listed companies used to have considerable power, but the market is changing in a positive direction. However, we do not know how quickly the market will become transparent and trustworthy. The regulators, media and institutional investors are now more serious about issues of valuation, transparency, corporate governance, etc. The regulators should consider increasing Qualified Foreign Institutional Investor (QFII) and ways of improving the dissemination of information to investors in order to set a good example in the domestic market.

A primary focus of the Chinese Securities Regulatory Commission (CSRC) this year is insider trading. Addressing this matter will improve the quality of listed companies and give investors greater protection. The regulators are working on improving access to information for investors and institutional funds will benefit significantly from this transparency. Regulators are concerned with addressing both the difficulty of access to information and the quality of information about IPOs, and it is quite likely that they will be able to improve both aspects.

Applying New Technology
The biggest technology upgrade implemented in the past six months has been algorithmic trading. Most Chinese buyside use their brokers’ algos, but in China, domestic mutual funds are not allowed to route orders to brokers. So what many dealing desks have done is to install the brokers’ algo engine on their side, so for every algo they choose, they go through their server and send the order to the exchange. In this way, dealers achieve efficiency in their algo usage because they do not use any brokerage; as a dealer, they are almost like their own broker. Algo trading also provides the buy-side with more precise post-trade analysis; specifically, the ability to analyze how much alpha has been captured and the transaction costs involved.

The primary benchmark used by most Chinese buy-side traders is Implementation Shortfall (IS), which is used to generate information to help the fund manager improve their investment strategies. For example, it might provide data about the delay cost created by an investment decision made an hour after the market opens, showing the fund manager that if the decision had been made earlier they could have saved a certain amount on the investment.

Richard Nelson, Head of EMEA Trading for AllianceBernstein, shares his perspectives on navigating volatility, prospects for developing exchanges, new regulation and the balance between transparency and best execution.

FIXGlobal: How much does volatility affect the way that you trade and what are you using to measure volatility on the desk?

Richard Nelson, AllianceBernsteinRichard Nelson, AllianceBernstein:
We use an implementation shortfall benchmark, so the longer we take to execute an order, the wider the range of possible execution outcomes. Volatility, in particular intraday volatility, increases that potential range, so you could see very good or very poor execution outcomes as a result. In reaction to that, we take a more conservative execution strategy or stretch the order out over a longer time period. And, for instance, if we get a hit on a block crossing network, we will not go in with as large a quantity as we would in a less volatile market. In that way we try to dampen down the potential effects that volatility might have on the execution outcome.

FG: How is AllianceBernstein using technology to improve performance and cut costs on the trading desk?

RN: It plays quite an important part and has done so for quite a while. We are pretty lucky in that we have a team of quant trading analysts. Most of them are in New York, but we have one here on the desk in London, and they help us to analyze the changing market environment and recommend the best ways we can adapt to it. Our usage of electronic trading has increased in the last year, we benefit from the quant trading analysts looking at the results we are achieving with our customized algorithms. We are more confident about getting good consistent execution outcomes because they are monitoring the process and making the necessary changes to ensure the results are what we are expecting. This, in turn, increases the productivity of the traders I have on the desk. They can place their suitable orders into these algorithms and let them run which allows us to focus on trying to get better outcomes on our larger, more liquidity-demanding orders.

On top of that, as market liquidity has dropped significantly, we are trying to make sure we reach as much potential liquidity as possible, and ideally we want to do that under our own name rather than go to a broker who then goes to another venue. We believe that going directly into a pool of liquidity is better done under your own name rather than via a broker because we can then access the ‘meaty’ bits of the pool rather than the ‘froth’. We are looking into ways of doing that but one of the problems is that, potentially, you get a lot of executions from a number of different venues, which results in multiple tickets for settlement. Our goal is to access all these potential liquidity pools, yet also control our ticketing costs, which are a drag on performance for clients.

FG: Was it an intentional change to increase electronic trading or was it a byproduct?

RN: It was a little of both. Our quant trader has been with us for two years and when he first arrived he had to sort out the data issues that exist in Europe and to clean things up. Once the data integrity was sorted out, we looked at different ways of employing quantitative analyses. Having somebody here who is constantly monitoring the execution outcomes means we can proceed down this path with real confidence. As a London firm, we were a little behind in our adoption of electronic trading, but now we are in the middle of the pack in terms of usage. It makes sense from a business and productivity perspective that there are many orders that do not need human oversight, which are best done in algorithms.

BNP Paribas Dealing Services Asia’s Francis So opens up about their new structure, how they use Transaction Cost Analysis (TCA) and their preferences regarding dark pools and High Frequency Trading (HFT) flow. 

New Structure
The Hong Kong dealing desk has been restructured as an externalised/outsourced dealing desk for the buy-side. As a result we are now independent of the asset management group and belong to BNP Paribas Securities Services. Our current name is BNP Paribas Fin’AMS Asia Ltd but this will soon change to BNP Paribas Dealing Services, better reflecting the services we provide. BNP Paribas Securities Services provides middle and back office outsourcing services for buyand sell- side, as well as corporate clients. This new dealing service allows us to provide a full suite of front to back office solutions to meet the needs of the clients. The trend has been for the outsourcing of back office activities and I think it is only a natural progression to consider front office activities. Given the market environment, cost reduction is a key element for asset managers/asset owners.  Outsourcing the dealing activity can help reduce cost but more importantly allows the asset manager to focus on delivering greater value to their clients. Our Paris office has been very successful in attracting external clients and in Asia we plan to ramp up activity in 2012.
 
We treat BNP Paribas Investment Partners (the asset management company of the Group) as one of our most sophisticated clients and as such must ensure that the services provided to them are kept to the highest standard. This will be the same for new clients as one of the keys to attracting and maintaining new client relationships is our ability to provide tailor made solutions and services. Clients can range from new start-ups to existing asset managers that already have a dealing desk. We offer flexibility to asset  managers such that they can choose the asset class and/or geographical region they want to outsource. For example, some asset managers that already have dealing capabilities in their home market may decide to invest in overseas markets or new asset classes. They need to ask themselves whether it makes sense from a cost perspective to create a new dealing desk where initial volume is expected to remain low.
 
We have the knowledge, the expertise and the global reach. We have locations in Europe and Asia to cover all asset classes globally. We also serve fund managers located in different geographical regions.
 
It is important to stress that we are in no way competing against the sell-side. Our clients keep their contractual and daily relationships with brokers. We act as an agency-only trading desk and we do not have any prop flow or take any positions.
 
We work together with the portfolio manager to determine what benchmarks best suit their needs. They are able to send orders to our global Order Management System (OMS) with a specific benchmark. By doing so, we can measure our execution performance using their specified benchmark, be it Implementation Shortfall (IS), VWAP or a specific  measurable benchmark.
Simo Puhakka, Head of Trading for Pohjola Asset Management, shares his experience trading in the Nordic markets, giving his opinions on interacting with HFT, using TCA and knowing whether you can trust your broker.
 
Nordic HFT
The prospects for High Frequency Trading (HFT) are really up to regulators. It will be a free market, but as we all know, regulatory changes affect the whole trading landscape. For example, we can see what is happening in France and the debate that is going on in Sweden, which are quite hostile towards HFT, so those countries.
 
Personally, I think that HFT is a good thing for the market, as long as you have the proper tools to deal with it. There are a number of small firms that have been suffering from HFT
since MiFID I because they lack the proper technology and tools to measure and deal with it. We have not suffered in our dealings with HFT, and I would actually say in many cases, it is the opposite. HFT firms seem to add liquidity and when you have the proper tools to deal with it, you can take advantage of it. 
 
Speaking of tools, we started building our own Smart Order Router (SOR ) a year and a half ago. The goal was to create an un-conflicted way to interact with the aggregated liquidity. In this process we went quite deep into the data and turned processes upside-down with the result that we have full control of how we interact with the market. 
 
On the other hand, I welcome technological innovation from the sell-side; for example, brokers now disclose the venues where they execute trades on an annual basis. The surveillance responsibilities that brokers have are beneficial. Many of the small, local brokers and buy-sides, however, are now finding it challenging to upgrade their technology. 
 
Trusting your Broker
Our approach was to take control of our order flow and only use our brokers for sponsored access. We chose full control because, in some to deliver  what I am asking.These questions first arose a few years ago, and we realized we needed to create a transparent, fully-controlled, non-conflicted path to the market. How you interact with different venues – even lit venues, where you have more transparency – will affect your choice of strategy. In most cases, you are better off without brokers making decisions for you. The root of the problem is, when you send an order to the broker, what happens before it goes to the venue? What control do we have over the broker infrastructure, including their proprietary flow, internalization, market making and crossing, not to mention the routing logic?
 
 When we dug into the data, we were quite surprised to see that, although a broker was connected to all the dark liquidity, many of the fills were coming from that particular broker’s dark pool, suggesting there are preferences in the routing logic. Brokers want to internalize flow, which is not a problem, if you are aware of potentially higher opportunity costs. When it comes to dark liquidity, that is an even bigger problem, since our trades were often routed to the broker’s own dark pool or those it has arrangements with. 

RCM’s Head of Asia Pacific Trading, Kent Rossiter, unmasks the Asian trading scene, sharing insights into how RCM navigates the unlit landscape, identifying the effects of dark liquidity and highlighting ways brokers can facilitate better buy-side decision making.

FIXGlobal: What are the main benefits of dark liquidity in Asia?

Kent Rossiter, RCM: One of the major challenges in Asia has always been accessing liquidity without other parties in the market taking advantage of your position and your need to complete the order. In cases where liquidity is scarce, knowledge that a relatively large order is being worked can expose investors to various risks. In such situations, it is  advantageous for knowledge of the deal whilst it is being worked to be discreet until the order is filled. In dark pools run by brokers we can get priority on our orders through queue-jumping.

Kent Rossiter, Head of Trading, RCMDark pools support such an approach as they allow large block orders to be worked without showing size. In this way, trading in dark pools allows a trader to access a broker’s own internal order flow, without being gamed by the market that would otherwise risk non-fulfillment or less efficient pricing. As a result, size trading becomes the norm in dark pools and a trader gets to see blocks that may never have been available otherwise. With no information leakage we are not disadvantaged by the fading you see on lit venue quotes. From a personal perspective, the challenges that arise from dealing across a number of venues and the resulting increased use of technology make the role more exciting and satisfying.

FG: How do you limit information leakage in dark pools?

KR: With the exception of broker internalization engines, the trade sizes found in dark pools are often multiple of what they are on the exchange. So having fewer, but larger prints reduces information leakage, and in many cases we can get done on our size right away. Minimizing the number of times a print hits the tape reduces the chance of this footprint being picked up and working against the balance of your order. That said, broker internalization engines do their part well, keeping any spread savings among the two broker’s clients instead of giving it up to the general market.

FG: If you decide to seek dark liquidity, how do you decide between broker internalizers and block crossing networks?

KR: The type of dark venues being used for various trades (i.e. between block crossing networks and brokers) are different. As I mentioned, brokers for the most part are matching up little prints that otherwise would have been time-sliced in the general market, and when using these venues the goal is often to save a few basis points along the way while you work an order. You are not often micro-managing each fill, but through the process we are getting spread capture and price improvement. The type of stock you are often trading in these internalization engines are often larger, more liquid stocks; the type of orders often worked by algos.

Block crossing networks on the other hand, while still matching up electronically, are probably more confidential, and take up the function of what brokers still do upstairs - putting blocks together - so size is the real focus here. Both types of dark pools use the primary market for price sourcing since the vast majority of trades get printed at or within the best bid and offer. As the primary markets become too thin, it can cause price formation problems.

While it is not specific to the consideration of dark pools as an extra execution venue, we have to consider potential increased book out costs if we do use dark pools (except via aggregators, since we would only be using one counterparty), just as we have had to for years when deciding whether to execute a block with a single broker versus multiple counterparties. As dark pools proliferate there is an increased chance that we may not have part of our order in that pool at just the right time to take advantage of flow that may be parked there. Dark pool aggregators are aiming to provide the buy-side solutions to this.

Despite the rapid advances in sophisticated trading tools, Bank of America Merril Lynch’s Anthony Victor argues that in times of volatility a knowledge of the basics has never been more important.

Anthony Victor, Bank of America Merril LynchWhile market structure and technologies may have transformed, basic trading skills are still critical to success.You do not succeed in any career unless you learn the basics and build a solid foundation in the fundamentals. For a role in electronic trading, the basics include understanding trading mechanics, market structure and technology, as well as the platforms that clients use to trade. Those old monochrome Quotron machines that were prevalent on trading floors when I started my career are now on the trash heap, replaced by state-of-the art technology, including touch-screen order management systems and workstations that supply news, market data, and analytics.

Since 2000, there have been some very dramatic changes in market structure such as decimalization, the advent of Reg. NMS and an increasing number of liquidity pools. Some of these changes resulted in a reduction of bid/offer spreads and a decrease in average trade size, which in turn, pushed market participants to use more advanced trading technology and ultimately algorithmic trading.

Algorithmic trading strategies, initially used by Portfolio Desks to manage large baskets of stocks, were eventually rolled out directly to the buy side. Trading no longer required multiple phone calls with instructions to execute an order. With a mere push of a button, these instructions could be sent electronically and trading goals could be efficiently realized. However, use of these tools still requires a good understanding of the basics and a team of support professionals that understand the nuances of how algorithmic strategies operate in the marketplace.

Within the last five years, Electronic Sales Trading (EST) desks have emerged on Wall Street to support the clients' electronic trading activity. Unlike traditional sales trading, which focuses on what clients are trading, electronic sales trading puts the emphasis on how they are trading. Most EST desks have evolved from a pure internal support role into a client-facing, direct coverage role that assesses a client’s performance via real-time benchmark monitoring and post-trade transaction cost analysis. Electronic Sales Traders need to understand market structure and their firm’s algorithmic offering (and that of the competition) to successfully support the trading platform.

While market structure, trading tools, and trading desk responsibilities have all evolved over time, basic trading skills are still critical to success. Part of that skill set includes the ability to maintain a disciplined approach to trading amidst a barrage of news, overall market fragmentation, and a huge volume of market data. Algorithms have assisted the buy-side coping with the complexity of the marketplace, but the choice of strategy ultimately belongs to the trader.

In Q4 2008, when volatility (the amount of uncertainty or risk about the size of changes in a security's value) peaked and preyed upon market participants’ emotions, many traders moved to more aggressive electronic trading strategies. In that tough environment, traders migrated away from passive strategies, like VWAP and lowparticipation algorithms, to more aggressive liquidity-seeking strategies, including an increased use of ‘dark pool’ aggregators. In a more volatile environment, traders felt pressure to make a stand or risk higher opportunity costs.

However, sometimes intuitive approaches do not work as expected. When analyzing the effects of the volatile market and looking at the slippage, or the difference of the execution price versus the price at time of order receipt (arrival price slippage), these aggressive strategies proved less successful than passive strategies, primarily due to the effects of volatility on spreads and depth of book. During that period, our research shows that S&P 500 spreads widened an average of 72% and book depth decreased 42% compared to Q1. Wide spreads and decreased book depth created a treacherous environment for aggressive, liquidity-seeking strategies, but favored more passive strategies.

Andres Araya Falcone of the Santiago Stock Exchange explains how FIX is increasing the range of services available to traders in Chile and throughout Latin America.

How is FIX facilitating DMA into the Santiago Stock Exchange?

The first concept of DMA in Chile began with what we call “direct traders” (buy-side traders) facilitating these specially authorized institutional clients, to send direct orders to the market via a “broker sponsor”. Thus, pension and mutual funds, insurance companies and other institutions, using trading terminals provided by the Stock Exchange, can trade directly in our market. The next natural step was the incorporation of electronic networks to attract order flow from the U.S., Europe and neighboring countries in Latin America, especially Brazil.

In 2006, we built the first FIX interface using version 4.0 to connect to the Marcopolo Network, to attract the order flow of our local equities market. After that, the Santiago Stock Exchange launched its initiative to modernize the equities electronic trading system and developed Telepregón HT, jointly with IBM, which went live in June 2010. This system is ready for algorithmic trading flow since it supports a throughput of over 3,000+ orders per second with sub-millisecond latency. In designing the system, we decided to use FIX 4.4 to enable easier connection via DMA with other exchanges, sell- and buy-side firms and market information vendors. This has greatly facilitated the connection to different networks, such as Bloomberg, Fidessa and SunGard, among others. For all these initiatives, FIX has been crucial in facilitating the integration with these listed networks. During 2011 we will announce new network agreements.

Currently, referring to the equity market, 11% of order flow comes from DMA which represents an  average of a 27% increase over the last 6 months, today 19% on average comes from Internet retail order flow, and the rest comes from traditional OMS and Trade Work Stations.

As foreign investment into Chile and the Chilean market continues, how will the Santiago Stock Exchange upgrade its platforms to meet increased investor and trader demands?

In 2010, the Selective Share Price Index (IPSA), the country’s main stock market indicator, gained 37.6% in Chilean pesos (equivalent to some 46% in dollars). Share trading on the Santiago Stock Exchange rose to US$60 billion in 2010, up 30.5% from 2009, setting a new annual record. Trading was particularly strong in the second half of the year, which accounted for almost 60% of the annual total, reflecting strong demand from both local and international investors.

At the same time, by the end of 2010, the Santiago Stock  Exchange had signed a linkage agreement with Brazil’s stock exchange, BM&FBOVESPA, heralding the latest in a series of cooperativeprojects being run between Latin American bourses. The agreement, signed on December 13th, will enable connectivity between both exchanges for order routing and market data dissemination. It also includes separate initiatives for further development of the Santiago Stock Exchange’s derivatives market, the establishment of joint initiatives related to settlement, clearing and central counterparty services, as well as access to the BM&FBOVESPA /CME trading platform from Chile.

Market participants in both countries will be able to route orders for stocks, stock options and related derivatives listed on the other’s exchange. Both exchanges will also be able to receive and distribute each other’s market data. Clearing and settlement of orders will be done according to local market rules of listed instruments. These kinds of initiatives imply that the Santiago Stock Exchange’s IT platform has to be prepared to manage more than 6 million orders per day.

What plans does the Santiago Stock Exchange have to accommodate High Frequency Trading and algorithmic order flow?

We are working as an integrator of a state of the art product for algorithmic trading. In conjunction with Streambase, FIXFlyer and IBM WFO, we are creating a product we will call “Broker in a Box”. The idea is to provide a framework for capital markets, including a set of algorithmic order execution strategies designed to achieve best execution, access liquidity, minimize slippage and maximize profits for trading operations. These algorithmic trading strategies (like VWAP, TWAP, Arrival Price / Implementation Shortfall, etc.), are provided as fully customizable EventFlow modules which can be used in conjunction with the frameworks. Trading firms will be able to modify each algorithm to reflect their own “secret sauce” and to differentiate their trading strategies in the market. The Santiago Stock Exchange will provide an “all in one” solution: integrated markets, market data (from Integrated Latin America Market (MILA), NYSE and NASDAQ), co-location, monitoring, local support, etc.

“Does your firm use TCA to measure execution performance and if yes, how effective a tool do you find it?”

Ian Firth, Aviva Investors, responds

Aviva Investors both subscribes to and supports the use of Transaction Cost Analysis (TCA). We acknowledge there are limitations, both with available systems and market data. We aim to identify trends and ways to improve our trading strategies, and we have spent a great deal of time and resources to continually improve the process we operate. The key to efficient TCA is accurate data and efficient time stamping. This will demonstrate where within the cycle of the order there are inefficiencies. All of our equity trades are subject to review, although a small number may fall out due to the fact specific markets and benchmarks in those markets are not provided/supported.

Trades are loaded on a daily basis and there is commitment from dealers and our in-house execution analyst to ensure that as much information as possible is attached to clearly identify specific trades. Regular reports with details and exceptions are sent to portfolio teams and management to monitor the ongoing performance of dealers, brokers and execution venues. We compare against various benchmarks, with Implementation Shortfall (IS) being our primary benchmark. There is greater discipline in recording all attributes, whether price limits, volume restrictions or direction from the fund manager, in order to identify exceptions and where appropriate identify these trades.

We have seen, and continue to see, an improving trend to our execution capability. We are able to easily identify outliers and explain the reasons for these. Improving results have helped with our profile and we have been able to distribute the results of our trading capability to end clients. We have received positive feedback from our clients, both direct and end, due to the results and the knowledge applied to explain said processes and results.

Brian Mitchell, Gartmore, responds

Yes; Gartmore’s monitoring and analysis of dealing efficiency is aimed at helping to reduce trading costs, identifying potential deficiencies and helping to ensure that our investment processes are in line with the highest market standards for buy-side best execution.

As part of our effort to ensure cost effective execution, we perform detailed TCA and within that we focus, amongst other things, on both the explicit and implicit costs of trading. Explicit costs include equity commission rates, ticket charges and local taxes. Implicit costs, which can account for more than 85% of overall implementation costs, include: (i) market impact (the cost of the bid/offer spread plus the price movement in excess of the bid/offer spread needed to trade the required volume immediately); and (ii) opportunity cost (the performance impact of not instantaneously completing the execution of an order).

While we use broker-led TCA offerings, (across our cash equities, PT and Algo business flows), we do not solely rely on them, given the potential lack of impartiality. It is also difficult to compare trades transacted by competing brokers, as most will inevitably use differing methodologies. We currently use an independent TCA service to help analyse in detail the true impact of equity trade implementation on client accounts and to analyse Broker / Dealer performance, sending them all trade data from our OMS on a weekly basis.

We participate in an anonymous peer group TCA database, to review our rankings on a wide variety of metrics and, as such, this is an effective tool for comparative work. We can compare our trading costs at the aggregate and/or regional level with others on a more realistic, difficulty adjusted basis.

Mihai Bistriteanu of Citigroup Global Markets Japan focuses on the trading pattern changes post-arrowhead implementation as well as its many opportunities and challenges.

Without a doubt, the Tokyo Stock Exchange's (TSE) implementation of “arrowhead” this January 2010 was one of the most important events in the history of Japan’s equity trading, with a lot of information and articles being circulated on the structural changes following the new system’s implementation. It is indeed amazing how arrowhead’s implementation changed the very core of Japan’s trading landscape making a huge impact on latency, market volume, trade size, price, as well as tick size dynamics.

Low Latency

Primary exchange speed was along awaited feature in Japan. The one digit millisecond turnaround on a non-collocated infrastructure, promised by the Tokyo Stock Exchange (TSE), is now finally happening in Japan, with a few interesting trends starting to develop as a result of the higher speed:

 

  • Strategies requiring low latency infrastructure can now be easily implemented across Japanese stocks.
  • There is an ease of integration of TSE flow within SOR (Smart Order Routing) systems and crossing engines.

One of the key drivers of arrowhead implementation is the aggressive growth of competition in Japan. The PTSs (Proprietary Trading Systems) and broker dark pools had the speed, and in some cases, price as competitive advantages. The liquidity available outside the primary exchange is still small compared to the ratios seen in Europe and the US.

A large percentage of the sophisticated buy-side investors refrained from using SOR technologies to avoid missing liquidity in the primary exchange because of the overall latency.

A standard matching system, with queue jumping functionality when posting liquidity, usually places multiple legs of the same order in multiple venues. When an order is matched in the proprietary crossing engine, the system sends cancellation requests to the other venues, and only when the acknowledgement is received is the cross executed.

The bottleneck for this technology used to be the speed of receiving the acknowledgement from the primary exchange, when the cross was found. Similarly SOR technologies send IOC (Immediate or Cancel) orders to multiple venues including primary exchanges. When one of the venues is slow, it will delay the entire system, therefore missing rapid price changes.

The fact that the TSE infrastructure speed is now in-line with its competitors will have a positive effect in widening the use of liquidity aggregation tools. This also may eventually result in an increase in liquidity on the alternative liquidity pools. The new broker pools and PTSs have to be competitive on all parameters (speed, price and liquidity) to enter and be successful in the Japanese market now.

Market Volume and Median Trade Size

Following the implementation, the volume growth started gradually. At this very moment, as I am writing this article, the rate of growth is still very positive. We expect this to reach saturation over the next couple of months. The main drivers behind the growth are the new strategies that take advantage of the high speed environment, as well as the general increase in activity at the beginning of the year and the market recovery.