Exchanges without borders – Meeting access and latency challenges across the Asia Pacific
By John Knuff
Can there possibly be a silver lining in the current financial meltdown? John Knuff of Equinix, argues that now is a time to upgrade your investment, allowing the Asia Pacific region to catch up with its US and European peers.
While the global financial crisis has inevitably had an impact on investment, most commentators seem to agree, that the Asia Pacific market will see on-going development, particularly as it continues to invest in the infrastructure and technologies, that will allow it to match its US and European counterparts, in key areas such as execution speed, easier market access and direct data feeds.
Analysts such as Celent see the current downturn as a significant opportunity for Asia exchanges, even suggesting in a recent report that Asian exchanges have the potential to overtake their US colleagues in the near future. Before this can happen, however, there needs to be sustained investment in the technology, skills and processes that will enable lower latency, easier access and faster data feeds across the region.
One of the key challenges remains the diversity of the region. While the geographical diversity, and vast distances involved, will always make it hard for traders to gain low latency access to multiple market centers, the added complexity of local regulations and last mile access make region-wide performance goals even more difficult to achieve. Nevertheless, factors such as direct market access, the increasing presence of alternative trading systems and the introduction of crossing networks, will have a tremendous impact shortly after local regulations ease.
Investing to close the gap with other global markets
To assume that the different markets in the Asia Pacific region will progress seamlessly together towards a more deregulated and open environment would be unrealistic. The global financial crisis is already leading some Asia Pacific exchanges and regulators to be more defensive in their outlook. However, it also provides an opportunity, for more traditional venues, to develop and implement their own alternative trading strategies to compete, more favourably, with new market entrants as conditions improve.
It is this imperative to remedy the handicap of limited bandwidth and slower trading platforms, that is driving Asia Pacific financial institutions to continue to update their technology infrastructure. As many of the incumbent exchanges re-tool their matching engines and foster technology partnerships, with global leaders like NASDAQ OMX and NYSE Euronext, the broker / dealer communities are quickly positioning themselves to be the partner of choice for many of their US and European counterparts.
Given this background, we believe it’s important for Asian market participants to ensure they are making the right infrastructure and connectivity choices today, to allow them to compete more effectively tomorrow.
A world of more end points and more trading venues
In an Asia Pacific market driven by the continued growth of automated and algorithmic trading, the emergence of new liquidity opportunities and increasing numbers of order destinations and market data sources, we’re increasingly going to see financial firms trading a much wider range of asset classes and instruments across broader geographies.
In those countries, where the incumbent exchanges still handle the majority of trading, these new market developments will have a significant impact as local traders who, limited by their current choices, increasingly send order flows to more accessible and transparent electronic markets. All this translates into more end points and execution venues, and is driving demand among financial services firms for a greater choice of networks with low latency/ high bandwidth capabilities to enable these higher message rates and optimise throughput.
With the landscape of the Asia Pacific market’s different trading centers evolving so quickly, it’s becoming increasingly apparent that a strong element of foresight, and much broader connectivity options, will play as important a role as proximity, when it comes to making location decisions across the Asia Pacific region.