Exchange of Ideas: HKEX Hosting Services Ecosystem Forum 2016

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The prospect of a Shenzhen-Hong Kong Stock Connect hung over the HKEX Hosting Services Ecosystem Forum. While the market waits for the regulators and the authorities to finalize that plan, traders, technologists and solution providers gathered to discuss new exchange initiatives, trading technology and regulatory updates.
New platforms, data
Equities turnover originating from hosting services averaged 45% of total turnover in March 2016, with 49.5% of derivatives trading taking place via HKEX’s data center, reported Jonathan Leung, Senior Vice President and Head of Hosting Services, HKEX. 125 Exchange Participants are using hosting services currently, with the number of Category-C, or small, brokers rising, Jonathan Leung shared in his opening remarks.
After consolidating three legacy data centers into the only exchange-owned tier-4 data center in Asia Pacific, HKEX has continued with its 100% market availability track record. Furthermore, the exchange opened up to three telecom carriers to provide SDNet/2 service, Richard Leung, Managing Director and Co-Head of IT, HKEX explained. SDNet/2 is the network infrastructure supporting HKEX’s trading, clearing and settlement, and market data services and providing reliable and cost effective network services to all exchange participants, clearing participants and information vendors alike.
A new cash trading platform, currently planned to be available for testing in 2017 and open for production around the end of that year, will reduce latency substantially, Richard Leung said.
The new Nasdaq Genium platform has increased capacity that allows the exchange to introduce new derivative products this year. The derivatives clearing system was also upgraded to shorten the day-end maintenance window, enabling trading hours on futures platform to extend to 11:45pm, and further, if needed, Richard Leung told attendees.
The Orion Market Data system for Cash and Derivatives markets offers low latency data service directly via the data center or information vendors as well as providing the market data of multi-asset classes, according to Winnie Leung, Vice President, Market Data Licensing, HKEX. With more and more exchange participants and buy-side firms pursuing low latency market data, HKEX introduced the OMD Free Trial Programme for Premium and Fulltick Datafeeds and Historical Full Book in November 2015 to allow this group of market data end-user to experience the OMD low-latency datafeeds for 3 months free of charge. “We have recorded a healthy increase in the subscription of our OMD premium datafeeds since then.”
The Shanghai-Hong Kong Stock Connect is seeing increased diversification, reported Christopher Hui, Managing Director, Project Management, HKEX. Southbound trading, which initially lagged northbound, is picking up while the stocks traded are gradually shifting away from A-H share arbitrage as investor preferences continue to develop, Hui noted.
Hui believes the Stock Connect plan will continue to thrive for four reasons: the redeployment of mainland wealth into capital markets from banking and insurance; rising mainland outbound capital markets investment; increased international participation in mainland markets; and Hong Kong’s unique position as mutual price discovery venue and offshore RMB risk management center.

A first phase of a closing auction covering certain large-cap and mid-cap stocks and all ETFs will start 25 July 2016, but short-selling will not be permitted, explained Roger Lee, Managing Director and Head of Markets, HKEX. The exchange’s volatility control mechanism, which will limit Hang Seng Index and H-shares index stocks’ price moves after a price spike, will be launched in August 2016 to hopefully leave trading firms time to prepare for a Shenzhen-Hong Kong connect, should it be announced.
Nianlong Weng, Assistant to the Managing Director, China Investment Information Services (CIIS) introduced the China Investment Information Platform, which offers market data access inbound for mainland investors and outbound for overseas investors.
As a subsidiary of the Shanghai Stock Exchange, CIIS provides tiered data access, from partners including China Securities Index, Dalian Commodity Exchange, Zengzhou Commodity Exchange, CFFEx and Deutsche Bourse.
Automation and balance
Technology spending and market resilience were the main themes of the panel on trading and technology hosted by Chris Lee, Senior Vice President, Client and Marketing Services, HKEX.
Brokers are spending on dark pools and blocks, rather than selling product suites, claimed Andrew Freyre-Sanders, Managing Director, Head of Equity Execution Services for CIMB Securities. Sometimes bear markets eliminate excess, he quipped.
For Simon Williams, Director, Head of APAC Equity Trading for BlackRock, solutions that automate compliance, operational and risk controls allow traders to improve implementation and get better trading outcomes for clients.
The technology arms race has dampened down in FX because a few microseconds doesn’t guarantee an advantage, explained Jay Hurley, Regional Head of eFX, APAC, State Street Global Markets. Exchange resilience has improved because redundancy is better built into systems now, argued Murat Atamer, Managing Director, Head of Electronic Trading, Bank of America Merrill Lynch. The balance between speed and safety must also not be forgotten, he added. If exchanges provide speed via thinner risk layers, traders are encouraged to reduce risk layers.
Exchanges are more resilient, Freyre-Sanders agreed, but end-to-end resiliency should extend further into the trading lifecycle. By taking ownership of the end-to-end experience, exchanges can engage with vendors to improve through providing more testing, for example.
As evidenced by the failed response of many market participants to the Swiss National Bank’s recent intervention in the FX market, participants may be more resilient but the market place may be more fragile, Hurley suggested.
No sudden movements
The day’s final panel on recent regulatory developments implications for Hong Kong and Chinese trading was moderated by Jessica Morrison, Co-Chair of the Asia Pacific Exchanges and Regulatory Subcommittee, FIX Trading Community, and Head of Asia Pacific Market Structure, Analytics and Commission Management, Deutsche Bank.
Many foreign investors still find China complicated and expensive to access, explained Dean Chisholm, Regional Head of Operations, Asia Pacific, Invesco. Simplifying access through one method without daily restrictions and either direct or indirect short-selling would make a big difference.
The new CSRC regime wants to sit back, learn from global best practice and proceed with no sudden movements, noted David Rabinowitz, Head of Electronic Trading and Market Structure, Asian Equities, UBS. China can learn from HKEX’s light touch approach, added Philip York, Chief Executive Officer, Alt 224 Group.
Hui recommended exchange participants prepare for the Shenzhen-Hong Kong Connect by learning more about the Chinese market’s dynamics and composition.
HKEX services investors and issuers from around the world, so it keeps an eye on developments around the world, Hui said. The key is not to look at China for just what it is, but what it will be, he added.
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