The Great Debate - Cost, risk and responsibility top the agenda with 400+ delegates in Hong Kong
In a packed room, and with nine meaty sessions, it was obvious there was a lot to talk about at the 7th Asia Pacific Trading Summit held in Hong Kong on the 4th of June. From an overview of the rollercoaster ride of the past year, to a crystal ball look at the year ahead, no subject was left untouched in a dynamic day-long event.
The theme for the event was a guaranteed conversation starter: ‘The Great Debate: Cost, risk and responsibility’. The overwhelming – and perhaps only – consensus of the day was the situation this year was markedly different from 12 months earlier.
The day started with well-known Hong Kong minority shareholder activist, David Webb, challenging the local stock exchange and regulator to ensure appropriate protection for investors in the markets. The discussion turned to the impact of the past year on asset management firms, followed by an assessment of what Asia can learn about best execution from the European model. It was broadly agreed that a Pan-Asia model was unlikely – not in our lifetime, some of the panelists remarked – it would be hugely advantageous for regional markets to create closer links. The speakers urged each market to consider and develop its own definition of best execution. More consensus on, and investment in, trading technology would be needed to support these enhanced networks, and regional regulations would need to be relaxed.
After listening to the discussion, the audience was asked via interactive voting consoles: Do you think existing regulation in Europe and the US adequately defines Best Execution and should they be adopted in Asia? The top answer, with 43% of the vote, was that there was no one-size-fits-all solution and that individual markets needed to define their own parameters.
As a follow on question, the audience was asked: Do you think Best Execution practices are already being implemented in Asia? A resounding 61% said there was a long way to go before Asia had the necessary tools and practices in place.
The Great Debate
The highlight of the day for many was a debate between a team of agency brokers and a team of full service brokers. It was a feisty session with some marked differences of opinion on the advantages offered by the respective brokers. The full service team pointed to the “full” and “service” in its title, arguing that for every $1 their clients put in, they received $10-worth of value. In a strong rebuttal, the agency brokers argued that “agency” was not synonymous with “small”, and instead spoke of the value of unbundled commissions. However, there was one key point of agreement: whatever the future held, both teams said, it would be the clients that would ultimately decide which route to take and that the decision would be based on cost and service. The main winner would be the buy-side, which would have a much greater choice of broker providers.
No knee-jerk reaction from the SFC
Always a popular speaker, the CEO of Hong Kong’s Securities and Futures Commission, Martin Wheatley, updated the audience on regulatory changes over the past year. Wheatley said more regulation was on its way, but that the SFC was committed to a considered and gradual approach which factored in the needs of the market, without resorting to the knee jerk reaction which many felt had been seen in the UK, continental Europe and the US. Judging from the reaction from the audience, the delegates felt the same way.
Power to the buy-side?
A shift in the power towards the buyside in the current trading environment was a discussion that generated a great deal of buzz among delegates. A panel from the buy-side preferred to call it a more “level playing field” with a positive focus on rewarding the broker that makes the most difference and adds the most value. The panel said that the brokers who recognized change as an opportunity, and who could move quickly and nimbly would be the winners. The panelists explained that the buy/sell-side relationship was built on trust and that this was the foundation on which they worked with their brokers. Technology was also an area in which the buy-side said it expected the highest level of service from its brokers. Taken together, trust and technology were the cornerstones. By way of an example, the buy-side panelists explained that, on average, 85% of trades went to their top 15 brokers, and that up to 50 brokers could be involved in the remaining 15%. The focus, they summarized, was on a consistent outcome for trades, rather than peak/trough performance, and that this often penalized start-up brokers.
The positive side of competition
Towards the end of the day, the focus turned to Hong Kong’s domestic exchange, the Hong Kong Exchange (HKEx). The audience was asked for their wish-list for HKEx. All agreed that the exchange had the opportunity to lead innovation in the region. The Exchange was also encouraged to give up its monopoly and urge the regulator to allow other liquidity venues to enter the market. Looking to examples in Europe and the US showed the opportunities created by introducing a more competitive exchange environment with greater liquidity, and while the domestic exchanges across Asia might lose market share, in percentage terms, the move would create more activity across the region and ultimately lead from better to best execution.
Wrapping up the day, before delegates retired to the bar to mull over the day’s proceedings, the co-chairs of the event organizing, FPL Asia Pac Education and Marketing Committee, offered a vote of thanks to Templeton’s George Molina who, after four years in the role, would be stepping down as FPL’s Asia Pac Regional Co-Chair. Molina, it was widely acknowledged, had played a key role in building awareness and understanding of the need to develop an efficient electronic trading across the Asia Pacific region.
To view all presentations and photographs, please visit www.fix-events.com