Liquidity Is At the Heart Of Asia’s Latest Trading Evolution


By Michael Corcoran, CEO, ITG Asia Pacific

The pendulum has finally swung to a model where buy-side trading is a valued function in its own right, so brokers must adapt to serve their clients effectively.

In Asia Pacific (APAC), institutional trading costs are typically higher than in other regions and have a material impact on fund returns. Fund managers with good Asia trading performance are saving an average of 50 basis points versus those with poor trading performance—enough to move a fund from negative to positive return over the past three years.1  As returns have compressed, managers have needed to look increasingly at reducing the costs of how they put their investment decisions into action.

Additionally, best execution requirements are now being driven onto managers not just by regulators, but by investors globally requiring high standards and demonstrable proof of efficient trading processes. Backed by the sweeping changes spreading across borders from Markets in Financial Instruments Directive (MiFID) II’s requirement to unbundle research from trading, the slow drip of asset managers overhauling their APAC trading desk processes has become a constant stream.

This new model makes the sole objective of a buy-side trading desk the delivery of efficient execution to maximise the investment return, rather than a payment mechanism for other activities. At more APAC firms than ever before, buy-side trading is now considered an activity in its own right, with a discrete existence as a cost and value centre. Particularly now that the shackles of directing trades for research obligations are being unlocked, the pressure on buy-side trading performance is stepping up to new levels.

A new service model
ITG’s execution-only brokerage model has always placed excellence in trading performance as its top priority, but we too must evolve as our clients’ requirements change. We have seen a particular shift in the value placed on liquidity sourcing, and a more pragmatic approach to the broker coverage model to help service those liquidity needs.

Buy-side desks increasingly expect a high-touch sales trading style of service from their electronic coverage, suggesting the term “low-touch” should be wiped from the trading dictionary. Our independence and execution-only focus have allowed us to quickly respond. In Asia Pacific, we offer a coverage model that maximises liquidity opportunities for clients through a consistent, unified service across all execution channels.

Operating a centralized coverage that extends to single stocks, program and electronic trading ensures a steady and reliable experience for clients across all three execution channels. They can choose whether they want a single touch point or product-specific support, and they can decide who within their ITG coverage team can see what piece of their trade flow and at any point in time. This drives liquidity sourcing opportunities across trading channels, as client coverage staff collaborate in the client’s interest. Importantly, we are also investing heavily in technology tools that identify real-time liquidity opportunities, enabling our traders to work across trading channels as an extension of the buy-side desk.

Harnessing technology
We have also seen rapid regional adoption of technology that focuses on liquidity sourcing. POSIT Alert, ITG’s anonymous institutional block-crossing platform, has already set and subsequently beaten its own daily records for value traded in APAC in January and February 2017, demonstrating the ongoing increase of liquidity being transacted through the platform. Now operating in 11 APAC markets, and 37 markets globally, we continue to invest in POSIT Alert to improve the user experience and add new and different liquidity.

The key to success is the scale and reach this technology can bring to the traders’ desktop. Asset managers trading Asian equities from all corners of the globe—including Canada, the U.S., Europe, Asia and Australia—can be presented with relevant liquidity opportunities without having to devote time to looking for needles in haystacks. Because the technology is smart enough to recognise when two or more buy-sides have potential to trade with each other, block opportunities can be discreetly offered within the buy-side community without showing their hand to the street.

Furthermore, we are devoting investment and resources to algo development and customisation across APAC and globally. Clients will benefit from algo refinement that improves their trade performance, which in APAC includes new tools for list-based trading, specialist consultation on performance-driven strategy selection models and data-driven changes to strategies that optimise passive fills and spread capture.

As asset managers in APAC focus increasingly on measuring and proving trading performance, and finding liquidity, ITG will continue to evolve the service we provide and the products we offer to deliver value for our clients.

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