Home › 
Current Issue
+ Back issue

Fabricio Oliveira, Head of Risk Management at Mirae Asset Global Investments Brazil, discusses his approach to pre-trade risk controls and how local market structure influences the occurrence of risk.

Fabricio Oliveira, Head of Risk Management, Mirae Asset Global Investments Brazil

Market Open
At Mirae we do much of our trading with offshore entities. For example, we have funds that are administered in Hong Kong, Luxembourg, Brazil, US and Korea and this geographical disparity creates operational risk. Differences in settlement price, currency and the timing of financial transfers are all aspects that must be considered when using offshore funds. The ability to settle a US trade in the US and not in another time zone is also important. This is particularly true of Hong Kong as our time difference is a huge barrier to trades in Asia. It is almost impossible to book these trades in Hong Kong even though our traders here see the opportunity to do so.

When I focus on the risks for open trading, the settlement movement is an important concern. Whether you are focused on market risk or liquidity risk, all risks need to be monitored, so you can have a clear view of what potential risks lie ahead.

High Frequency Trading
There is much discussion in the industry and at conferences about high frequency trading (HFT) in Brazil, but we are not yet ready for high frequency strategies. The industry is starting to see how HFT works, but liquidity in Brazil across asset classes is insufficient to support these strategies. There are approximately 300 listed companies in equities and about half that number in derivatives, whether in bonds or yield curves or currency. The local players who run HFT strategies focus on the few stocks and derivatives with liquidity, which does not give them many options to find alpha over short periods. It will be interesting to see how it works in North America and Europe and for us to consider what might be possible in Brazil. For now, I do not see many players in HFT and I can count on one hand the number of funds using HFT.

Our pre-trade risk controls have not had to account for HFT volumes and speeds yet, so we have focused more on core control mechanisms. We have some vendors who can produce risk controls for the current liquidity. If we have liquid stocks, derivatives or OTC products, then we can define our own risk controls. Fund houses with hundreds of funds will have difficulty in applying those controls to the trading systems, but as Mirae mainly focuses on equities, our implementation burden is much lower. Today, all our pre-trade risk controls are done in real-time, including automatic limits. Beyond this, we still have a layer of control in the trader on the desk.

Working with Brokers
When discussing risk controls, it is important to mention that in Brazil all brokers employ significant risk controls on their side, to prevent them from taking on more risk than they can carry. When the brokers start to trade with the exchange, the exchange provides them with risk guidelines and limits. As clients of the sell-side, buy-side desks cannot exceed their assigned broker limits and their orders will be automatically paused if the broker’s limits are reached. The broker’s risk controls are complete; they will not take on risk. As a result, their clients do not have much help in implementing their own controls. This is exacerbated because a fund house may trade with many brokers – in our case we deal with 35. It is impossible to implement one solution per broker, so we rely on our OMS provider to connect with the brokers and to match up risk controls.

Schroders’ Head of Asian Trading, Jacqueline Loh, shares her thoughts on trading in Asia, offering comments on which markets are primed for change, how to find value in dark pools and whether unbundling is as useful as people say it is.

Asian Fragmentation

Fragmentation arising from multiple sources of liquidity is a necessary step in the evolution of best execution and in the long term, fragmentation will increase the quality of trade executions in Asia. What it means for the buy-side is investment in infrastructure spending to develop new order routers and the like, so we can electronically seek out and have exposure to multiple liquidity sources. For the sell-side, it means acceptance that there will be more competition for the same block of business in the marketplace. It means different things for different buy-side firms as well.

Investor IDs

When I think about the investor ID markets in Asia, I am not sure any model is particularly productive because ID markets make it administratively more difficult to trade. IDs can make best execution very difficult to implement, especially if cash and stock checking is the primary consideration. Some of the ID markets, namely Taiwan and Korea, allow trading through omnibus accounts and that seems to be the way it is evolving. The ID markets are slowly going away, but having said that, the most productive example is probably China because the brokers seem to have a handle on exactly how much cash and stock you have in your account, and therefore how much you can sell and buy. You cannot overspend or oversell, and it is relatively easy to take part in IPOs.

Trade allocation used to be a problem with investor IDs; for example, explaining to compliance and regulators why the prices are not exactly the same between accounts. In these cases the use of omnibus accounts really help. Executing through omnibus ID means you know exactly what is in an account and do not experience many of the issues associated with overselling or settlement. It is a lot cleaner.

With retail-heavy markets, anonymity is the primary consideration for us. We tend to trade more using electronic means and make use of dark pools in retail-heavy markets. In addition to that, the algos we use will be more price-specific, rather than volume-participation models, which are more price impacting.

Best Execution, in the Dark?

You would think that dark pools would have more success in markets where spreads are currently wide and there is a need to be anonymous, which would imply ASEAN markets. In practice, however, it has had more success in Hong Kong, and that is because there are more users of electronic trading there. Perhaps the users are a little more sophisticated as well insofar as they are willing to take accountability for their executions. Which is, in fact, what defines electronic trading.

In our experience, dark pools make a difference in terms of liquidity, however, the question is what creates that difference? Is it the electronic trading system feeding through the dark pool that provides the benefit or is it the dark pool, itself? I would say it is the former, but that may depend on each user. routers. I hope the Securities and Exchange Board of India will consider further change including allowing stock crossings and clarifying the rules regarding P-Notes.

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.

  At the FIXGlobal Face2Face Forum in Seoul, Korean firms announced the formation
of a FIX working group and the Korean Exchange’s intention to build an ultra low
latency trading platform.

The opening speaker at the FIXGlobal Face2Face Forum Korea was keenly anticipated by the 200+ delegates, (a quarter of whom were made up of the buy-side and a third the sellside), as he was raising many of the issues that surround the HFT arena, but that are rarely touched on at industry events in Korea. By placing HFT in context , Edgar Perez, author of the recently published “The Speed Traders”, highlighted many of the opportunities and challenges that markets around the world face, in the low latency trading strategies environment. Not least, he pointed out the colossal task facing regulators and associated technology costs, just to monitor high-frequency trading, post trade, let alone real-time.

A recurring theme throughout the day, latency was covered by most of the presentations, especially in the context of FIX. Deutsche Borse’s Hanno Klein, and NYSE Technologies Asia Pacific CEO, Daniel Burgin, stressed that FIX standards are quite at home in the low latency environment, with exchanges around the world already using FIX for their low latency systems. As Mr. Burgin pointed out, “FIX is not slow, but through poor implementation, it can be made slow – and this has happened in various markets”. These comments rang true with the attendees, especially as Mr. Kyung Yoon, Division Head of Financial Investment IT Division of KOSCOM, outlined their plans not only to implement the latest version of FIX at the Korean Exchange, but also that when the new exchange system is rolled out in 2013, that speeds as low as 70 microseconds will be their benchmark. To the ‘icing on the cake’ Mr. Yoon then expressed KOSCOM’s commitment to helping establish a FIX liaison group in Korea that will ensure a highly ‘standard’ implementation of the FIX Protocol.

MC for the day, FIXGlobal’s Edward Mangles, (also FPL Asia PacificRegional Director), welcomed the announcement, stating that he and the FPL Asia Pacific group, looked forward to working more closely with KOSCOM, KRX and the Korean trading community as a whole. With delegates staying put to hear the bi-lingual presentations/discussions throughout the day, (with a few afternoon speakers actually commenting that the crowd in the room was unusually large for the final sessions), the updates on algorithmic trading (Josephine Kim, BAML) and TCA (Ofir Geffin, ITG) provoked a number of follow-up questions and discussions, indicating the delegates’ appetite surrounding these issues.

DATAROAD’s David In-hwan Lee shows how Korean traders are utilizing FIX to improve both domestic and international trading capabilities.

How has FIX adoption improved Korean trading?

David In-hwan Lee, DATAROADIt was at the end of 2002 that Korean institutions were able to process orders from foreign institutions using the FIX Protocol for the first time. During the following years the FIX Protocol in Korea developed very fast over almost a decade of use.

Before the adoption of the FIX Protocol, approximately 60 securities firms, 40 institutional investors and multiple foreign institutions had been processing orders using telephone, FAX and emails, which were very inefficient means of one-toone communication. Now, most sell-side and buy-side firms are able to place orders conveniently and promptly, and receive execution reports realtime using the FIX Protocol.

After adopting the FIX Protocol and Order Management Systems (OMSs), both institutional investors which place orders and securities firms which receive orders and execute them at the exchange were able to improve their internal trading tasks noticeably. Korean securities firms were now able to connect via networks with the trading systems of overseas institutional investors more efficiently, in contrast with the past. Moreover, since they are actively using the FIX Protocol in connection with outbound orders such as FX transactions and overseas future trading, as well as inbound orders, the adoption of FIX greatly contributed to the internationalization of the Korean securities market.

What is the opinion of Korean brokers toward algorithmic trading?

As OMSs are adopted along with the FIX Protocol, Korean securities firms perform basic algorithm trading using the automatic order system provided by their OMS. Although they currently support simple types of algorithmic trading only, I believe that more diverse algorithm trading functions will be necessary as the Korean securities industry goes through environmental changes.

The Korean securities market is expected to go through a major systemic change in the near future. Although it has not been finalized yet, securities exchanges in Korea are expected to compete with one another starting from the second half of 2012 because the establishment of an Alternative Trading System (ATS) in the Korean securities market will be allowed by then.

Also, the Korea Exchange (KRX) announced a plan for developing a next-generation trading system EXTURE+ in late July 2011. More specifically, KRX plans to develop a new system aiming for two-digit microsecond latency for its trading system. I believe that Korean securities firms should expand the functionality of their own algorithm trading for brokerage business and adopt ultra-high speed DMA systems in order to be able to perform low latency trading demanded by the algorithm trading systems commonly used by buy-side firms. As a result of the changes in the environment of the Korean securities market, High Frequency Trading (HFT) and algorithm trading are expected to develop quickly during the next several years.

What benefits have Korean buy-side firms seen since adopting FIX?

It was the buy-side that received the greatest benefit after adopting the FIX Protocol.

Before discussing the benefits of adopting FIX, it is important to know the relevant  circumstances before the adoption of the FIX Protocol. During the early 2000’s (right after the IMF crisis), Korean asset managers’ systems for managing funds had several problems. For example, the distinction of the roles between fund managers and traders was unclear, the compliance system was not established and people processed orders (placing orders and confirmation of executions) manually, often using telephone, FAX or email. Moreover, although there were back office systems for calculating NAV (Net Asset Value) and accounting, they were not prepared with OMSs for their trading systems.

Put three men and a FIXGlobal’s Edward Mangles around a table; serve them lunch and let the tapes roll. FIXGlobal listened in on a conversation that ranged from regulators to risk and from FX to FIX.

Edward: In defense of the regulator … how should they know what’s going on when neither the sell nor buy-side seem to know?

Vincent: Recent events have shown the divide between the financial market participants and the regulator. For example, the Lehman’s mini bond issue has forced a strong dialogue between the regulator and, in particular, the broker side. But the engagement is slow.

Kent: Retail brokers tend to have a strong voice here in Hong Kong and over the years have developed a strong working relationship with the regulators. Local brokers can at times be pretty outspoken and have proven on many occasions to be an effective lobbying group. From our perspective international brokers tend to be less visible in some of these debates. We see certain common characteristics across Asia where understandably there is a good deal of focus on protecting the retail investor given the high retail investor participation in many of the stock markets in Asia including Taiwan and Korea. The challenge has certainly been in the retail space where there is an overlap of regulatory responsibility in approving and offering products.

Edward: Are we asking the impossible of the regulator to create the same rule book for retail and institutional investors?

Kent: The general principal is that retail investors are less savvy and experienced and regulations need to be explicit. There is a general assumption that as professional investors, institutions can operate with greater flexibility since they can understand the risks in a more sophisticated way. Taking account of this framework then it will not be possible to standardize for both types of investor. The risk is that setting minimum requirements to protect the retail investor may not suit the way business is transacted at an institutional level. Here we advocate consultation and support stronger trade associations.

Vincent: I don’t think you can realistically expect the same regulations for retail traders as for big institutional investors. That’s a utopia that’s never going to exist. These two  groups of investors have different needs. Many regulators – in Europe for example and Luxembourg in particular with their efforts to push through the UCITS 4 protocol – understand that you need different protocols for retail investors.

Kent: But Vincent, every investor has the same goal: making money. It’s only the detailed requirements that are different.

Gerry: There’s certainly a larger burden on the big firms to uphold ethical, legal and fiduciary standards.

Kent: Yes. Retail investors don’t generally have the same constraints on their activities. Institutional investors need a more developed investment process and must ensure fair treatment across all clients regardless of size and fees. Institutional investors will undoubtedly be looking at different investor objectives – for one, they need to be able to implement their strategies in much greater volumes, and in scale, for example.

Edward: How about the role of regulators in curtailing short-selling in many markets? Knee jerk or long-term strategy?

Kent: I’d like to see the ability to short-sell fully resumed as soon as practically possible. We’re now in a situation where some markets have suspended it, and some are allowing it again. This is not ideal. I certainly see the temporary prohibition as a knee-jerk reaction and understandable given the groundswell of public opinion and corporate pressure as the financial crisis took hold – not all of this opinion was entirely rational. In fact, short-selling restrictions can reduce volumes for trading in the markets overall. For one, we have a 130-30 fund. So in this fund, if we’re limited in the number of attractive long-short pair trades we can put on then we’ll just end up trading less. So it’s business that never happens and the unknown would-be client on the other side of our trade – whether they’re institutional or retail – through the exchange, never gets to take advantage of the liquidity. What we need is a greater understanding of how shorting operates. There is a lot of misconception around this issue.

Gerry: I see the value and merit in allowing short selling in varied markets. In markets that don’t allow it, the regulators need to develop this functionality. It encourages more liquidity and volume. But I do understand that in the current environment the regulators have little choice. We won’t know the full impact until later on.

Vincent: The problem is that there’s no consistency among the regulators. Some only forbid short selling on financials. It’s a disruption to competitiveness between various sectors.

Kent: Yes. And not being able to short, will reduce derivatives trading. The fact is, a lot of the shorting that goes on isn’t just one-way, but a strategy with a ‘long’ component to it as well. And funds that relied on the little performance boost from securities lending fees have also seen their returns diminished. The equity finance desks at the brokers have seen a real drop-off in trade volumes because of this.

Vincent: Now the regulators are trying to encourage investors to buy again in a bear market – and there’s a lot of inconsistency between the messages they’re sending now and what they were telling us six months ago.

Mirae Asset Securities' Jamie Kim, spoke to FIXGlobal about the progress in Korea and what it still has to achieve.

Despite being a worldleading economic power, Korea still faces challenges in upgrading its electronic trading capabilities and attracting the foreign investment community and foreign investors to its shores. While electronic trading is growing in popularity, obstacles remain to greater adoption.

Trading securities on the Korean exchanges is not as simple as it could be given the relative maturity of its economy and financial markets. This is doubly the case for international investors, who face complications and limitations in the trading process. While online trading is increasingly the norm, the adoption of FIX as a common protocol is patchy with progress curtailed by well-established domestic electronic trading technologies.

A brief overview of the trading process goes some way to illustrate this point. Firstly, trading can only be done by a firm authorised by the Korean Exchange (KRX). For an individual investor to trade, they must first open an account with one of theseapproved firms. The next hurdle is to pay the pre-advanced cash deposit required before any order – on or offline – can be placed. The system will first check if this deposit has been made, before the order is transmitted to the stock exchange via the computerized order-routing system offered by the exchange, or developed by the securities broker.

Korean securities companies receive client orders via written instruction, telephone, fax or online. With online trades, the company must enter into a prior agreement with the investor on the type of orders placed, and fulfill the requirements imposed by KRX.

Investors can trade online via HTS (Home Trading System), PDA, mobile phone or ARS (Automatic Response System). According to the KSDA (Korea Securities Dealers Association), HTS remains the most popular channel, as the online trading process is fully automated.

Online orders received by securities companies are sent directly to the trading system of the Korean exchanges without manual re-input. The large securities companies usually develop their own online trading platforms while smaller ones can make use of the system offered by KOSCOM, a subsidiary of KSE (Korea Stock Exchange).

As for FIX, currently only offshore foreign clients use this standard communications protocol for electronic trading. Our view is that the high cost of upgrading technologies across the financial community and within the exchanges, and lack of a dominant OMS vendor, is curtailing wider usage.

Drivers – and inhibitors – for online trading
The rise in the popularity of online trading can be attributed to a number of factors: changes in the regulatory system, rapid advances in technology, the high penetration of personal computers and the efforts of securities firms to encourage more online trading among their client base.

In comparison with the US market, trading in Korea is characterized by wider spreads, tighter liquidity and lower electronic trading volumes. However, things are changing rapidly. Markets in Korea (and across Asia) are expanding, and higher demand for electronic trading has driven liquidity higher. These trends will undoubtedly create different trading strategies and require an increasingly sophisticated trading infrastructure.

These factors, coupled with the growing presence of bulge bracket brokerages and more advanced technology, look set to create greater opportunities for those seeking to trade in the Asia region. It is increasingly recognised among the investment community that electronic trading can lower barriers to entry, increase efficiency, reduce risk and allow trading companies to withstand the significant increase in trading volumes in real time and at lower costs.

Looking ahead
The trend is definitely towards more global traders – and foreign clients – moving into Korea. However, for Korea to realise its full potential as an international trading market, it must put greater focus on three areas: improving consistency in its regulatory environment, upgrading its technology infrastructure; and adopting a common protocol in line with the expectations of the international trading community. Despite our concerns about cost, and the lack of a dominant OMS vendor, it would seem that FIX would seem a natural choice. We, along with many others in the Korean market, would welcome this progress.

As recent history shows, China has a vast and diverse economic system, which contains a number of economic sub-systems, many of which have experienced growth in the last 36 months. In the media, headlines portray China to be an economic powerhouse, with expansion plans that have far reaching implications for these domains, including electronic trading in Financial Services.

One area that has seen much attention from western companies in the financial sector over the last two years is that of the Qualified Domestic Institutional Investors (QDIIs). More and more of the QDIIs, are gradually being granted authorisation by the Chinese government to trade global offshore securities in the stock, bonds and other securities. QDII programs are used in places where the capital markets are not yet completely open to all investors. For example, any institutional investor in China that obtains approval to be a QDII may invest up to 50% of net assets into allowable foreign securities, so long as not more than 5% is invested in any one security.

Background on some recent changes to the QDII programme

According to DeaconsLaw.com, the China Securities Regulatory Commission (CSRC) has confirmed it had signed Memorandum of Understandings (MOUs) with four jurisdictions, namely Australia, Germany, Korea and Luxembourg, in addition to Hong Kong, United Kingdom, Singapore, Japan and USA over the past year. This means for commercial banks, QDII investment products issued by commercial banks may invest in listed stocks and mutual funds supervised by the relevant regulatory bodies in these jurisdictions. Also, in the case of Chinese fund management companies (FMCs); in 2009 the FMCs were permitted to extend their asset management services to multiple-client accounts, following single client segregated account services, which were launched during 2008. Whereas now, FMCs may expand their managed account asset management services to include investments in offshore markets and mutual funds as well as offering QDII funds.

To be able to invest offshore, FMCs need to apply for a new QDII investment quota or use any balance of their existing QDII investment quota (originally granted for the launch of QDII funds), provided an approval is obtained from State Administration of Foreign Exchange (SAFE).

Trading offshore – Global Markets

Global Markets may be a new experience that some of these Chinese Funds’ find they have insufficient understanding or experience to adequately deal with.

This perceived shortfall of global markets trading experience manifests itself in both an opportunity and a threat, each with their own risks, neither of which can, nor should be ignored. Prudence and patience should be employed when prioritising the financial services opportunities in China; with their exceptionally high savings rate and positive trade balance providing an abundance of capital, some of which is targeted at foreign investment – Qualified Domestic Institutional Investors (QDIIs), this is a fledgling sector and is transitioning very slowly.

What is important for western companies to consider is that a lot of leg work will be necessary, whilst it may feel like a fruitless exercise, it is important to stick at it and be sure that your value proposition is appropriately reviewed in the right forum.

The financial services arena in China, is no stranger to electronic trading, this can be seen with their domestic solutions, which demonstrate a good deal more Straight Through Processing (STP) than most western organisations.

With increased market capacity and lower latency, Korean brokers are looking to continually build their level of service for international clients. Adrian O, Director, Execution Marketing, Korea Investment & Securities Asia (KIS), offers FIXGlobal his perspectives on the practicalities of ‘trading Korea.’

In just over a few decades, Korea has evolved to become one of the world’s major stock markets. Not only is it one of the most active derivatives markets (KOPSI 200 options), but it has also recently been classified by the FTSE as a“Developed Market.” The Capital Market Consolidation Act in Korea, which took effect in 2009, has opened doors for brokerages, asset management firms, futures companies and trust companies to compete with each other and with banks and insurers. With the new Act, financial companies in Korea are no longer limited to operating under one business type; they are now allowed to operate any financial market or product for which they obtain a license. For instance, banks are now able to enter into the securities and options business. As a result, the Korea Stock Exchange (KRX) upgraded its entire system in March 2009 in order to deal with the new regulation and capacity issues.

 

From your experience, what do your clients look for in a Korean broker?

 

As a single market local broker, we have been focusing in greater detail on the Korean market in every aspect of trading. As such, international institutional clients expect us to provide our local expertise at every step of the investment process, from investment decision making to execution and settlement. From providing greater corporate access, to timely publishing of research and local news, we offer local flavour, market colour and trading anonymity. The concentration of all our resources in a single market allows us to provide the broadest spectrum of services and cater to different customer’s needs in a more flexible manner. For instance, statistical arbitrage (Stat Arb) customers who are sensitive to speed of execution, can utilize proximity hosting in the local data centres provided by some of the local brokers, rather than turning to a 3rd party vendor. This kind of value-added service is possible because most of the major Korean brokerages own their own data centres, with KIS, for example, employing over 300 IT staff to serve the Korean market. Other examples of the broad spectrum of services in Korea are IPOs and Stock Borrowing and Lending (SBL), where local brokers, typically, are strong in sourcing deals.

 

What are the challenges for institutional international clients trading in the Korean market?

 

Each Asian market is unique, but when it comes to the Korean market, it is widely known that the market standards and regulations are somewhat more unique than other markets. Some regulations, such as the “Real Name Act,”which are unique in Korea, make it an ID market for international institutional clients. As such, the exposure of trading information to the market is greater than in other markets, and it often impacts the execution costs. Therefore, maintaining trading anonymity and confidentiality has been a key concern of international buy-side clients for trading in the Korean market. Large local brokers, like KIS, with sizeable market presence in other segments, such as domestic institutions and retail, have been a popular choice as an execution broker. This is due to the camouflage effects of mingling foreign volumes with other segments, thus preventing possible front running by other market participants.

Overall, most challenges in trading the Korean market arise from country-specific rules, regulations and certain tax systems that are different from other markets. International clients expect local brokers to be an expert adviser in providing solutions to derive best execution within any given market situation.

Korean Markets Profit from the Adoption of FIX - FIXGlobal Face2Face Electronic Trading Forum, Korea: October 2010