Xinhua News Agency and Shanghai Stock Exchange team on financial information

November 8, 2008 — finetik

The Xinhua News Agency (XNA) and the Shanghai Stock Exchange (SSE) further expanded their cooperation as the XNA Financial Information Platform established on the SSE its first Financial Information Collection Station ever on the domestic capital market on November 4.

Before, the Platform had already entered Wall Street, with an information collection station on the New York Stock Exchange (NYSE). XNA Vice President Lu Wei, SSE Governor Geng Liang inaugurated the Station.

It is learned that full-time journalists will be dispatched to the SSE upon the establishment of the Station for collecting and publishing promptly the first-hand financial information on the Shanghai securities market. According to the “XNA, SSE Framework Agreement on All-round Cooperation” signed by the XNA and the SSE this May in Beijing, the two parties will cooperate widely and closely in such fields as financial information services to build a news collection and publication mechanism for deep cooperation in fields of commercial data and information products. Through the channels and platforms including the “Xinhua 08″, a comprehensive financial information service system independently developed by the XNA, efforts will be made to popularize the key information and data on the Shanghai securities market to cultivate the market, educate investors and make deep information research. Besides, they will also work together in information technology and talent exchange.

As a national project in accordance with the “Outline of Cultural Development for the ‘Eleventh Five-Year Plan’”, the XNA Financial Information Platform is a comprehensive financial information service system, serving as a terminal for providing real-time information, market quotations, historical data, research tools and analysis models for economic management departments, financial institutions and large/medium enterprises in their transactions of bonds, foreign exchanges, stocks, gold, futures and property rights both at home and abroad.

On October 20, the Shanghai Headquarters of XNA Financial Information Platform was inaugurated in the Lujiazui Finance & Trade Zone in Pudong District to boost the construction of Shanghai’s international financial center and upgrade the efficiency of financial information collection. It is a vital move for the Headquarters to set up the Station on the SSE. Following its successful move into the Wall Street with a station on the NYSE for timely collection of daily financial information, the XNA is also planning to establish more stations on other key elements markets both at home and abroad.

Source: Xinhua News Agency, 06.11.2008

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Global funds industry shifting to Asia

October 28, 2008 — finetik

More than ever, fund management companies of all stripes need to build distribution into Asia and the Middle East, says Strategic Insight.

New York-based consultancy Strategic Insight says in a new report that the credit crunch has revealed the essential need for fund management companies to have a distribution into Asia – and predicts many more will build it.

Source: AsianInvestors, 27.10.2008 by Jaime DiBiaso

Funds under management in Asia as well as the Middle East and Latin America will grow much more quickly than those in the United States and Europe over the next five years, says Daniel Enskat, managing director and head of global consulting.

Fund companies that lack an Asian reach have suffered the most in the credit crunch, he suggests – not only because they missed out on last year’s asset-gathering bonanza, but because redemptions in Western countries, particularly Europe, have been most severe.

Such companies with only European clients, even if they have great performance, are nonetheless suffering acute redemption pressure, because investors are panicking and dumping anything to move to cash.

Strategic Insight says mutual funds in Asia have enjoyed net inflows of $60 billion from January to August, versus a net outflow of $360 billion in Europe.

Finally, for fund companies around the world, Asia is the most likely source of business to pull them out of the slump, due to its demographics, its economic growth prospects, the low penetration of investment products and the youth of the domestic fund industries.

Enskat cites China as an example. He compares China’s investors today to European ones in the run-up to the 2000 tech bubble collapse. In both cases, many first-time investors got burned. In Europe, investors generally switched to low-risk savings products and capital guarantees. So far, however, Chinese investors don’t seem to be in full retreat.

“Distributors don’t want to make the same mistake in China,” Enskat says. “They want to educate investors about having a longer-term framework.” He notes that regulators have taken a proactive stance against mis-selling and improving products, which is why the industry hasn’t suffered the kind of mass redemptions that have taken place this year in markets such as Germany and Italy.

Enskat reckons there is also a cultural factor. He says Asian societies, lacking a welfare state, have instilled a sense of self-reliance. First-generation entrepreneurs are relatively young and willing to take risks with their money, while Westerners, already wealthy, are more interested in capital preservation. “Asian investors are proactive, not defensive,” Enskat concludes.

He says the credit crunch, and blow-ups such as the Lehman Minibond fiasco in Hong Kong and Singapore, is an opportunity for the mutual-funds industry to argue its case: that funds are the most transparent, liquid and straightforward investment products that investors will find.

“Distributors want a simple story told with conviction for a transparent product,” he says.

The challenges are how to convey this message to investors (and to distributors’ sales teams). High management fees and front-end loads can be a problem during bear markets, although Enskat believes investors are willing to overlook these when times improve; eventually Asia will need to shift to an American model in which asset managers force their brokers to sell on the basis of advice, rather than commission for pushing products.

Today it seems nearly all the big global names in asset management are already on the ground in Asia. But Enskat observes that there are many small- and mid-sized fund managers in Europe and Asia that have yet to set up a presence in the region. Should this matter?

Consider, Enskat suggests, that two-thirds of today’s top 50 global houses would not have been ranked 10 years ago. Names like AllianceBernstein, BGI, Janus, Pimco, SSgA and T. Rowe Price would not have figured.

Now consider the coming regulation of the hedge fund industry. The biggest hedge funds will find themselves going public and competing for assets from sovereign wealth funds and other institutional investors, rather than rely on family offices and endowments. How many of these will be in the top 50 in another decade’s time? And how many of them have distribution networks in Asia now?

And the traditional funds world will also throw up new winners that are relatively unknown today, Enskat argues. He notes that fund companies can become major players on the back of a single product, citing Kokusai’s income bond fund (sub-advised now by Western Asset), Pimco’s total return bond fund, Pictet’s utilities fund, BlackRock’s global allocation fund and some of Schroders’ global balanced funds for UK pension clients.

There are plenty of mid-sized players in America and Europe with similar products, some of which will become the blockbusters of the future – but these companies have no exposure to the world’s new growth markets. Which means they will be looking to set up distribution arrangements. The pain of the credit crisis is going to accelerate this process.

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HKEx And Shanghai Stock Exchange Subsidiaries Sign Market Data Collaboration Agreement

October 22, 2008 — finetik

HKEx Information Services Limited (HKEx-IS) and SSE Infonet Limited, the information business subsidiaries of HKEx and Shanghai Stock Exchange (SSE), today (Monday) signed an agreement for a market data collaboration programme.

The agreement was signed by SSE Infonet Chief Executive Officer Wang Yong and HKEx-IS Director Bryan Chan in the presence of SSE General Manager Zhang Yujun, HKEx Chairman Ronald Arculli and Chief Executive Paul Chow. Other senior officials from both parties also attended the signing ceremony.

The objective of the collaboration programme is to assist investors who have interest in shares of issuers that have listed in both Hong Kong and Shanghai by raising the transparency of the securities trading in the two markets.

Under the programme, both parties are entitled to redistribute the other party’s basic real-time market data for the companies with listings in the two markets to their own authorised information vendors (IVs) for onward transmission to the IVs’ subscribers for internal display purposes.

The collaboration programme will come into effect on 1 January 2009 and will be subject to a review in two years. The usual exchange fees for market data are waived for the two parties, their IVs and their IVs’ market data subscribers under the collaboration programme.

The programme is expected to benefit investors in both markets and help increase the transparency of the securities trading in the two markets. At the end of September this year, there were 48 companies listed in both Hong Kong and Shanghai, and the group’s Hong Kong-listed shares collectively represented 29 per cent of the Stock Exchange’s turnover and 23 per cent of its market capitalisation.

“The agreement will increase the transparency of the Mainland and Hong Kong markets further, enhance the market data service quality of the two exchanges, provide more complete market information and better service to investors and also further promote the cooperation between the two exchanges,” said SSE General Manager Zhang Yujun.

“The market data collaboration agreement that we entered into today with SSE marks another step towards the closer integration and cooperation of the Mainland and Hong Kong markets. We believe the collaboration programme will benefit investors of the two markets and will be welcomed by them,” said HKEx Chief Executive Paul Chow.

Programme information is posted in the Investor section of the HKEx website under Real-time Data.

Source: HKEx 20.10.2008

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Tianjin Climate Exchange TCX opens headquarters CNPC, TPRE, CCX

September 30, 2008 — finetik

The China National Petroleum Corporation Asset Management Company, Ltd. (CNPC-AM), Tianjin Property Rights Exchange (TPRE) and Chicago Climate Exchange (CCX) announced the opening of the headquarter offices of the Tianjin Climate Exchange (TCX), China’s first integrated exchange for trading of environmental financial instruments. As a joint venture between CNPC-AM, the City of Tianjin and CCX, TCX intends to establish China as a pre-eminent center for environmental finance and the application of market-based mechanisms to environmental management and natural resource protection. TCX will design and develop standardized financial products that will advance the stated environmental goals of the 11th Five Year Plan of China to reduce sulphur dioxide emissions and water pollutants, as well enhancement of energy efficiency, among other initiatives. TCX will afford Chinese financial institutions, trading desks and industrial companies an opportunity for linkage to international markets and provide price transparency and world-class product design.

The Tianjin Climate Exchange will establish and operate an electronic emissions trading platform and auction facility based in the city of Tianjin, China. Tianjin is a special development zone designated by the State Council of China as a center for financial innovation, and the development of an emissions exchange is a component of the Binhai Comprehensive Report Plan approved in March 2008. TCX will be located on Financial Square in the heart of Tianjin’s new Binhai economic zone.

Summing up, Dr. Sandor said: “The Tianjin Climate Exchange three-party venture maximizes the special advantages of each of us: Tianjin has had the vision to establish a center for financial innovation; CNPC-AM has understood the strategic importance of emissions management to its own businesses; and CCX has been a pioneer in establishing new environmental markets worldwide. At CCX, we are significantly proud of our new landmark partnership with CNPC and Tianjin, because it marks the birth of full-fledged environmental markets in China and a historic milestone on behalf of the people of China and the world.”

Source: Mondovision 29.09.2009

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China Allows Short Sales, Margin Loans to Help Market

September 28, 2008 — finetik

China’s cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia’s second-largest market after prices and trading volumes slumped, an official familiar with the plan said.

The State Council signed off on a China Securities Regulatory Commission plan submitted this month to allow margin lending and short selling, said the official, who declined to be identified as he isn’t authorized to speak on the issue.

China’s action contrasts with regulators in the U.S., Europe and Australia that have banned short selling in the past week to shore up financial shares battered by the global credit squeeze. China’s government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.

“It’s quite positive for the market and will help attract fresh capital into equities,” said Wu Kan, a fund manager in Shanghai at Dazhong Insurance Co., which oversees the equivalent of $285 million. “Given the current level the index is standing at now, I do think some investors will buy low through margin trading so as not to miss the boat.”

Index Futures
Short selling may accelerate the introduction of stock- index futures that will allow investors to short contracts on the CSI 300 to hedge risk. The China Financial Futures Exchange published rules in June 2007 that said investors would be required to put up 10 percent of a contract’s value to buy, sell or short sell CSI 300-based futures. No date was given at the time for when the products will start trading.

Key Task
Short selling and margin lending “will attract inflow of some capital into the stock market, but won’t help reverse the market trend unless expectations about corporate earnings growth improve,” said Wu Youhui, a strategist at GF Securities Co. in Guangzhou. “Brokerages will benefit most as they’ll have a new source of income.”

It will take several days for the paperwork to go through, and the plan will be announced before the week-long National Day holiday next week or right after it, said the official.

Brokerages
According to the rules, only selected brokerages are allowed to handle margin trades as part of a pilot program. They must have three years trading history and net assets of no less than 1.2 billion yuan for the past six months.

The regulator stated that only companies with market values greater than 800 million yuan and with stable share prices are eligible to be sold short.

Source: Bloomberg 26.09.2008 : Zhao Yidi in Beijing at at yzhao7@bloomberg.net; Zhang Shidong in Shanghai at szhang5@bloomberg.net

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Chinese regulator says US lending was ‘ridiculous’

September 27, 2008 — finetik

TIANJIN, China - U.S. lending standards before the global credit crisis were “ridiculous” and the world can learn from China’s more cautious system as it considers financial reforms, the top Chinese bank regulator said Saturday.

Beijing curbed mortgage lending in 2003 and 2006 to keep debt manageable amid a real estate boom, while American regulators responded to a similar situation by letting credit grow, said Liu Mingkang, chairman of the Chinese Banking Regulatory Commission.

“When U.S. regulators were reducing the down payment to zero, or they created so-called ‘reverse mortgages,’ we thought that was ridiculous,” Liu said at a World Economic Forum conference in the eastern Chinese city of Tianjin.

He said debt in the United States and elsewhere rose to “dangerous and indefensible” levels.

Liu’s comments were unusually pointed criticism of U.S. financial regulation for a Chinese official. They added to suggestions by countries that are under U.S. pressure to liberalize their financial markets that Washington’s model might not be ideal.

China has based its reforms on the U.S. system but has moved gradually. It has kept its financial markets isolated from global capital flows, prompting complaints by its trading partners.

As China made changes, “a lot of the time, we learned that what we had learned from our teacher the day before was wrong,” Liu said, referring to the U.S.

China’s state-owned banks have avoided the turmoil roiling Western markets. Chinese banks hold bonds from failed Wall Street house Lehman Brothers, but they are a tiny fraction of their vast assets.

Liu compared Washington’s proposed US$700 billion plan to revive credit markets to fast food and said the world needed to look at longer-term solutions.

“Fast food is convenient. This US$700 billion package must ease the concerns and build up confidence. But if you only take this, it doesn’t agree with your stomach. You should think about Chinese slow cooking and slow food,” he said.

Liu called for governments to create international standards and regulatory systems for globalized financial markets. He said Beijing has signed information-exchange agreements on financial regulation with 32 other countries since the turmoil began.

Liu pointed to China’s experience with real estate and the collapse of a stock market boom.

As stock prices in China soared, banks were ordered to make sure customers were not using loans or credit cards to finance speculation. As a result, Liu said banks have suffered no rise in loan defaults even though stock prices have plummeted 63 percent since the October 2007 peak.

“We Chinese can share our own experiences with all the market practitioners,” Liu said. “Maybe our experience cannot be applicable to developed markets fully. But still, I think it might be useful and helpful to those in emerging markets.”

Chinese and foreign businesspeople at the World Economic Forum, the Chinese leg of the forum based in Davos, Switzerland, said the credit crisis is likely to increase the influence of China and other emerging economies in the world financial system, though Wall Street will retain its leading role.

“I believe this kind of regional financial strength will play a bigger and more important role,” said Jiang Jianqing, chairman of state-owned Industrial & Commercial Bank of China Ltd., the world’s biggest commercial lender by market capitalization.

“Right now the market is very unitary,” with U.S. bonds dominating global holdings, Jiang said. “This kind of a unitary, overcentralized market is something we need to change.”

Still, he said, Wall Street’s “dominance will continue.”

The European Union trade commissioner, Peter Mandelson, defended the global capital markets structure, warning that drastic change might hurt prosperity.

“The capital market system, fundamentally, is not flawed,” Mandelson said. “We are not looking for some alternative, and I hope that people in the emerging markets, in China for example, are not looking for an alternative to properly functioning capital markets.”

The crisis is likely to reduce resistance in the West to investments by government funds as companies urgently seek capital, said Thomas Enders, CEO of the European aircraft producer Airbus Industrie.

Critics have questioned the possible political motives of state-run funds and an EU official warned last year they might face restrictions if they fail to disclose more information about their goals and tactics.

“I would dare to predict that, yes, one of the big changes we will see is greater acceptance of sovereign wealth funds,” Enders said.

Source: AP 26.09.2008 JOE McDONALD,AP Business Writer

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China likely to allow REITs as property policy eased

September 5, 2008 — finetik

BEIJING (Reuters) - China may introduce property trusts this year, giving developers a much needed new source of funding, according to a top industry association official who believes Beijing is easing its tough stance as the property market cools.

The move could come as part of a government change of tack to ease tight monetary policies, many of which have been aimed at the property industry, according to Nie Meisheng, president of the China Real Estate Chamber of Commerce.

Beijing intensified a campaign late last year to clamp down on bank loans to the property sector, asking for higher down payments from homebuyers, as part of a wider effort to curb inflation and rein in runaway growth.

The steps hit home sales — down 50 percent in Beijing, Shanghai and Shenzhen in July from a year earlier — and prices in some areas of Guangdong province have fallen 25 percent.

Nie said the measures were aimed at cutting the industry’s dependence on bank loans, which account for half of developers’ funding, but added that Beijing was keen to ensure the property market did not collapse and hurt the broader economy.”When one door closes, others will open,” she said.

China has given the green light to big developers, such as China Vanke, Poly Real Estate and China Merchant  to issue corporate bonds or new shares to replace loans coming due and to fund further expansion this year.

Setting up real estate investment trusts (REITs) - securities that pay rent from their property as dividends - will provide developers with a new avenue for funding, allowing them to effectively sell finished commercial buildings to investors.

Source: Reuters, 02.09.2008 for full article click here

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Shanghai: SSE 180 Corporate Governance Index To Be Launched

August 28, 2008 — finetik

The Shanghai Stock Exchange (SSE) and China Securities Index Co., Ltd. (CSI) have recently announced that the SSE 180 Corporate Governance Index, a new investment target index for investors, would be launched on September 10, 2008 to indicate trend of the stocks with good corporate governance in the SSE 180 Index. The base day of the index, the same as that of the SSE Corporate Governance Index, is June 29, 2007. Its short description is “SSE 180 Governance”, with the base point of 1,000 and the code of “000021″.

The SSE 180 Corporate Governance Index is a theme derivative index from the SSE 180 Index and the SSE Corporate Governance Index. According to the published index scheme, constituents of the index are composed of the top 100 stocks with large scale and sufficient liquidity in the SSE 180 Index and the SSE Corporate Governance Index. So far, the total market capitalization of the 100 constituents has reached RMB8.5363 trillion, or 66.93% of the A shares’ total on the SSE. Their floating capitalization has been RMB2.1439 trillion, or 55.63% of the A shares’ total on the SSE.

Source: SSE 27.08.08

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China Regulators: Careful preparations ahead of Index Futures

August 5, 2008 — finetik

The long-awaited stock index futures in the mainland market still need careful preparation due to changing situations, a senior official with the China Securities Regulatory Commission (CSRC) said, dampening market hopes that the product will kick off year.

At the half-yearly work meeting of the CSRC this week, a senior official said the regulator will continue preparatory work for the stock index futures under the principle of pursuing high standards and a smooth start, China Business News reported Thursday, quoting a source who attended the meeting as well.
While fortifying operations for existing futures products, the regulator will introduce new trading products steadily, the official said.

Currently, the nation’s fuel oil and metal futures contracts are traded in the Shanghai Futures Exchange, while farm produce futures deals are made in Zhengzhou and Dalian.

Established in 2006, the China Financial Futures Exchange will cover trading of Financial derivatives, including the stock index futures. Its virtual transaction is already under way.
Previously, there were market rumors that preparations for the index futures were close to an end and the launch was just around the corner.

Although the regulator has expressed similar expectations on different occasions, the situation has changed beyond the original plan so far, the CSRC official said. He vowed that financial authorities will review the market performance and make relevant preparations.
The official noted that the regulators will carefully consider individual investors’degrees of acceptance in the design of index futures. They will also draw lessons from warrants issued to prevent excessive speculation.

Last week, a source from China International Capital Co said the stock index futures trading is likely to be launched in January of next year rather than sometime this year after the Beijing Olympics.
The source stressed that the authorities deemed it prudent to launch index futures trading in a stable stock market environment with limited daily price fluctuations.

Source: SINA.com, CITIC Futures, Mr. Liang Haisan, 01. August 2008

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Asia Pacific exchanges added to Tenfore’s global coverage as investors seek new opportunities

July 18, 2008 — finetik

Global market data provider Tenfore has expanded its global coverage with the addition of comprehensive “Level Two” market data1 for four Asian and Pacific markets. Gordon Bloor, CEO of Tenfore said: “The addition of New Zealand, The Philippines, Bursa Malaysia and Thailand reflects investment trends with investors seeking new opportunities, with a particular focus on the Far East. Full article click here.

Source: Tenfore 16.07.2008

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Impact of growing Market Data Volums - Shanghai

November 28, 2007 — finetik

See Presentation (.ppt) as presented on October 18th, 2007 in Shanghai to China’s financial information vendor and user community. Trend and Solutions in of the growing market data volum.  An event jointly organized between SSE Infonet (Shanghai Stock Exchange) and FISD

Source: 18.10.2007 FiNETIK, Stephan Stadelmann

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Asian Exchanges – The Awakening (Part II): FIX in China

November 2, 2007 — finetik

By Stephan Stadelmann, Managing Director, FINETIK

Published in AsiaMarketsIT.com, on 01 May 2007 10:37:01

Back in 2005, I attended the first FIX Conference held in Shanghai. Although great numbers of local attendees showed up curious to learn about FIX, most local participants did not see much benefit in FIX for China.

Regardless of the bureaucrats’ strive to carefully loosen the tight network of regulations, China’s markets hit record lows and a fiercely competitive battle between securities houses squeezed margins. Little or no money was left to invest, making it an environment of bare survival. This was the situation less than two years ago despite the hype in the foreign press about China, which continued through all this time.

Despite this turbulence below the surface, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the China Securities Regulatory Commission (CSRC) understood the importance of FIX, and bought into the vision that a unified, standardised exchange trading protocol and interface would simplify infrastructure for market participants and exchanges in the long run. They also appreciated such unification would drive down IT expenditure, including support and maintenance, for the diverse market participants in China’s vast financial market, and prepare them for foreign competition.

In March 2003, the SSE and SZSE started to jointly develop a Chinese version of the FIX protocol called Standardized Trading Exchange Protocol (STEP), and in November 2003, CSRC set up the STEP Sub Committee, with founding members CSRC, SSE, SZSE, Shanghai Futures Exchange (SHFE), HuaXia Securities, GuoXin Securities and TaiYang Securities. The committee was given the task of building a standardised protocol, considering first and foremost the needs of the Chinese markets. In 2005, SSE joined the global FIX Protocol Limited (FPL) organisation and in 2006 FPL’s subcommittees for exchanges and ECNs.

Today, the STEP protocol is being implemented, based on FIX 4.4 with some minimal exchange specific variations in the SSE and SZSE versions. In other words FIX.

SSE tested its STEP engine as early as 2006 and will be deploying the engine to its market participants as part of the New Generation Trading System (NGTS), which will be operational later this year. SZSE will follow shortly, and both exchanges will be ready by the end of 2007.

However not all members will be ready or are willing to embrace STEP from the beginning. Large brokers and asset managers and those with foreign involvement will be the first to accept the new protocol. Smaller brokers and those in the process of restructuring are hesitant to accept and deploy STEP.

Concerns remain among some of China’s market participants about STEP, specifically with regard to performance in handling order volume, reliability and local support. So NGTS will provide direct market access (DMA) in parallel through two protocols, one being STEP and the other being the SSE’s current proprietary exchange protocol.

As a logical consequence, market data will follow, in FIX compatible format, once NGTS has been released into production.

All of this will happen – in the best case scenario – in time to coincide with Qualified Foreign Institutional Investors (QFIIs) successfully pushing China to allow DMA from overseas.

Rumour has it that a few of the QFIIs are already preparing for DMA into the Chinese markets, which represents no technical issues, but has not legally been deregulated. For Chinese domestic brokers and asset managers (regulated differently from foreign QFIIs) DMA is legally possible. However, SSE’s exchange members are required to separate reports to regulators for domestic and foreign order flow and hence QFII orders need to stop at the local executing brokers’ desks.

The writing is on the wall!

It used to be said that when US markets sneeze, Asian and European markets will get the flu. However, this might change. The sharp drop in China’s markets in February could be a portent: for the first time in decades, US markets suffered a drop caused by another country’s exchange, and not vice versa. We might have passed a historical turning point, and China’s exchanges seem to be preparing to take on the challenge.

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Asian Exchanges – The Awakening (Part I)

November 2, 2007 — finetik

By Stephan Stadelmann, Managing Director, FINETIK

Published in AsiaMarketsIT.com on 01 Apr 2007 12:35:53

The Asian Century

During the past decade, Asia has fallen periodically in and out of favour with investors globally. Excitement has been followed by caution, which has been followed by excitement once again. Today’s focus on Asia, which owes much credit to the rise of the Chinese and Indian markets, shows signs of becoming a stable period of global investment into Asia. It is no coincidence that some analysts have called this the “Asia Century”. Against this backdrop, the exchanges in the Asia-Pacific region have lagged behind their US and European competitors (with perhaps the exception of the Australian Stock Exchange (ASX)).

However, with hindsight, this could turn out for the better for Asia’s exchanges, as it gives them ample opportunity to study the ingredients of past successes and failures. Governments in Asia are much more involved in the business of exchanges than in Western countries, and the process of deciding on change, and how to execute such change, can be cumbersome, and might follow paths that are not always obvious to the observer, or to external firms that decide to pitch for any business with Asian exchanges. However, once Asian exchanges have decided to make change, they tend to be genuinely determined to carry it through.

Challenges and Opportunities

The challenges and opportunities facing the exchanges and their market participants in what is the fastest growing part of the world are substantial.

Let’s look at China, where 2.5 million new investor accounts were added to the Shanghai Stock Exchange (SSE) in 2006 alone, making a total of 41 million accounts. The Shanghai and Shenzhen Stock Exchange exceeded a combined 80 million registered accounts in Q1 2007, and there is no slowdown in sight. SSE’s existing trading system is scheduled to be replaced in Q3 2007 with new generation trading systems designed to accommodate at least 80 million accounts, 20,000 order matches per second and a scalable minimum of 63 million executions a day. The new systems will cater for multiple asset classes such as cash equities, funds, warrants, bonds and financial and commodity derivatives.

Another much talked-about market is Vietnam’s HoSTC (Ho Chi Min Securities Trading Centre). HoSTC is at a very different crossroads on its path to growth and deregulation from that of the SSE, but there are similarities. HoSTC is also doubling its number of trading accounts, and the pilgrimage of foreign institutional and retail investors into Vietnam is ongoing. The demand for investing into the exchange manifests itself in some very peculiar forms: for example, travel agents in Japan sell tour packages to Vietnam that offer tourists the opportunity to open “a trading account (on HoSTC) after your tour of the Museum of American War”. Such tactics aside, the order placement, matching and trade execution processes on HoSTC are still extremely laborious and manual today. By May 2007, continuous trading will be introduced, and by mid-2008 a new trading system with electronic direct market access (DMA) is scheduled to be in place.

From a technology perspective, the global FIX protocol standard has been accepted by stock exchanges in the Asia-Pacific region. However, though interest is on the rise, adoption in practice is slow. Exceptions to this are ASX, leading the way in Asia (using FIX for trading and market data), followed by the Singapore Stock Exchange (SGX). Bursa Malaysia (BM) and the Stock Exchange of Thailand (SET) are following, by launching FIX connections to their trading terminals. China’s Shanghai and Shenzhen Stock Exchanges are leveraging the concept of the FIX protocol, albeit in a modified form: they are using what they term STEP, Securities Trading Exchange Protocol, for their internal benefit.

Legacy System Replacement

There is a need for most if not all exchanges in Asia to replace their current legacy systems. This requirement is being driven by the demands of inflowing investments that compel the exchanges to cope with high volume growth and demand for DMA. While foreign market players are the driving force, domestic participants are increasingly starting to engage in DMA, and domestic trading volumes are also on the rise. Asia’s exchanges are also under pressure to extend their product ranges for foreign investors. This, coupled with the need to increase trading capacity, further confirms the trend to replace legacy systems. The Asia-Pacific region is an increasingly competitive environment in which markets are fighting for an increased share of incoming investments, and one highly visible marketing strategy is to publicise plans to replace and upgrade legacy exchange systems. This may, to some extent, explain why some of the more conservative exchanges seem to be executing such replacement projects half- heartedly in the eyes of foreign market participants and the international software firms that are trying to win these exchanges’ lucrative and prestigious technology replacement projects.

Asia endeavours to be self-sufficient. As a result, its exchanges believe there are opportunities to promote and sell their own trading technologies to other exchanges within the region. For example, SET, BM and Korean Stock Exchange (KRX) are becoming de facto technology vendors to emerging markets like Vietnam. At the opposite end of the spectrum, FT India, a trading systems technology provider, has emerged as a dominant exchange in India with MCX (Multi Commodity Exchange), and owns part of DGCX (Dubai Gold & Commodity Exchange). FT India is currently expanding its activities through active involvement with other exchanges in the region, providing consulting and trading systems.

Market Data

On the market data side, the SSE Infonet business of the Shanghai Stock Exchange launched in Q2 2006 a new level 2 market data feed with a new stringent business model for the exchange data industry. The Hong Kong Exchange (HKEx) and SSE Infonet have now agreed to distribute each others’ market data feeds for cross-listed and specifically selected stocks. Similarly, the Tokyo Stock Exchange and the New York Stock Exchange have agreed to a cross-continental distribution of some of their data.

Another hot topic within the Asian exchange industry is the merging of separate exchanges for cash products, financial derivatives and commodities derivatives, with all the implications of such moves for products and technology.

Last but not least, the expectation of cross-country exchange mergers and alliances has been fuelled by a recent flurry of (often vague) memoranda of understanding between several exchanges in Asia and European and US exchanges wishing to create a presence in Asia.

The activities among Asia’s exchanges in 2006 and early 2007 are only the tip of the iceberg. Stay tuned…

Stephan Stadelmann is the founding partner and managing director of FINETIK Partners.
www.finetik.com

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FiNETIK speaks at Events

October 30, 2007 — finetik

10.2007 FINETIK speaks at Shanghai Stock Exchange/ FISD East Asia, Shanghai, October 18 “Impact of Growing Market Data Volum”

05.2007 FINETIK speaks ATIC Asian Traders and Investor Conference, Ho Chi Minh, Vietnam,” What do Institutional Investors expect of Vietnam”

10.2006 FINETIK speaks at FISD Asia Financial Information Summit, Singapore;” Does Unified Data lead to a Unified Market?”

05.2006 FINETIK speaks at GBST Client Forum, Melbourne; “Asian Financial Markets”

11.2005 FINETIK speaks at Inside Market Data, Asia, 2005, Hong Kong; “Local vs. Global Vendors”

12.2004 FINETIK speaks at ARIMI Risk Management Seminar, Singapore; Data Management Risk

10.2003 FINETIK speaks at PRIMIA in Shanghai; “Operational Risk in Financial Information Management”

11.2002 FINETIK speaks at Investors World Services Asia, Singapore; The Challenges of Implementing STP

10.2002 FINETIK speaks at DAMA-METADATA Europe in London, UK; Data Strategy: Global Design for Local Content

05.2002 FINETIK speaks at DAMA-METADATA International, San Antonio, USA; Global Modeling & Knowledge Management for Local Content

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Asia Reference Data Survey, London Stock Exchange

April 10, 2006 — finetik

Explicit survey of the Asian reference data landscape, survey done on behalf of London Stock Exchange

Asian Reference Data Survey 2006 - English

Asian Reference Data Survey 2006 - Chinese

Asian Reference Data Survey 2006 - Japanese

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