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Asia is
currently the most popular region for trading new markets among proprietary
trading firms, hedge funds and bank execution and trading desks, according to a
new joint report by Acuiti and Bso. This is as trading firms are increasingly
looking to expand their strategies to new markets at the same time exchanges in
those markets are making big investments in their infrastructure and
technology.
However,
the report notes that high cost of connectivity , long timeframes for market
entry and concern over latency, which has become increasingly important even
among firms that do not rely on it for their strategies, are critical factors standing in the way. However, trading firms are
increasingly counting on third-party providers to ease these challenges.
Acuiti’s new report is based on
a survey of senior executives from 76 proprietary trading firms, hedge funds and
bank execution and trading desks. Majority of the report’s respondents work for European companies, with other based in Asia, North America and other parts of the
world.
According to the report, other top jurisdictions trading firms want to establish new markets
are Latin America, Middle East and Europe. In particular, Taiwan is the most
popular new market in Asia, followed by South Korea and Hong Kong. While Indian
and Chinese onshore markets are also top choices, they rank lower in the
executives’ estimations.
“While
China has a well solid investment story, many firms have found it complex to
navigate and concerns still persist around getting money out of the country,”
the report said. However, the report points out that new rules due for enforcement later
this year is expected to accelerate interest in trading Chinese onshore markets.
Furthermore, Brazil,
Mexico and Chile are the top three new markets trading firms are eyeing in the
Americas; Saudi Arabia, Dubai and Qatar in the Middle East; and Turkey, Poland
and Austria in Europe.
The
Challenges of Market Expansion
Meanwhile, 56% of respondents
in the survey said their
companies intend to connect
to a new market in the next three years, with the majority doing so to
diversify their trading strategies. However, the high cost of connecting to a
new market is a big challenge.
“Almost 60%
of firms surveyed reported rising costs of connecting to a new market over the
past five years. Executives reported that costs tended to rise as they sought
to establish connectivity to more emerging and frontier markets,” the report
explained.
On delay experienced in establishing a new market presence, majority of the respondents told Acuity that the period
for connection to new markets after a decision to expand
has been made has risen to seven months or longer.
“Close to a
quarter said the process lasted more than a year,” the report said, adding
that while prop trading firms and banks found the process longer, hedge funds
were able to implement their strategies at greater speed most
likely due to
their prime brokerage relationships.
On latency, the Acuiti survey found that the time it takes for an order to be executed
after it is placed remains an
important factor for all firms when expanding into new markets. It said this factor, in
fact, “remains
more important for prop trading firms, especially for the top tier shops, than
for other company types—reflecting their role in market making across global
exchange.”
To address
these challenges, the report notes that the trading firms are choosing to partner with
third-party providers to save cost, reduce market entry delay and support the maintenance of their business.
“These vendors often have long standing
expertise in the markets that firms want to enter and [have] established
connectivity rules,” the report noted. “They are also adept at providing low latency
connections, which is becoming increasingly important to a wider range of firms
beyond those traditionally focused on ultra-low latency connectivity.”
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Asia is
currently the most popular region for trading new markets among proprietary
trading firms, hedge funds and bank execution and trading desks, according to a
new joint report by Acuiti and Bso. This is as trading firms are increasingly
looking to expand their strategies to new markets at the same time exchanges in
those markets are making big investments in their infrastructure and
technology.
However,
the report notes that high cost of connectivity , long timeframes for market
entry and concern over latency, which has become increasingly important even
among firms that do not rely on it for their strategies, are critical factors standing in the way. However, trading firms are
increasingly counting on third-party providers to ease these challenges.
Acuiti’s new report is based on
a survey of senior executives from 76 proprietary trading firms, hedge funds and
bank execution and trading desks. Majority of the report’s respondents work for European companies, with other based in Asia, North America and other parts of the
world.
According to the report, other top jurisdictions trading firms want to establish new markets
are Latin America, Middle East and Europe. In particular, Taiwan is the most
popular new market in Asia, followed by South Korea and Hong Kong. While Indian
and Chinese onshore markets are also top choices, they rank lower in the
executives’ estimations.
“While
China has a well solid investment story, many firms have found it complex to
navigate and concerns still persist around getting money out of the country,”
the report said. However, the report points out that new rules due for enforcement later
this year is expected to accelerate interest in trading Chinese onshore markets.
Furthermore, Brazil,
Mexico and Chile are the top three new markets trading firms are eyeing in the
Americas; Saudi Arabia, Dubai and Qatar in the Middle East; and Turkey, Poland
and Austria in Europe.
The
Challenges of Market Expansion
Meanwhile, 56% of respondents
in the survey said their
companies intend to connect
to a new market in the next three years, with the majority doing so to
diversify their trading strategies. However, the high cost of connecting to a
new market is a big challenge.
“Almost 60%
of firms surveyed reported rising costs of connecting to a new market over the
past five years. Executives reported that costs tended to rise as they sought
to establish connectivity to more emerging and frontier markets,” the report
explained.
On delay experienced in establishing a new market presence, majority of the respondents told Acuity that the period
for connection to new markets after a decision to expand
has been made has risen to seven months or longer.
“Close to a
quarter said the process lasted more than a year,” the report said, adding
that while prop trading firms and banks found the process longer, hedge funds
were able to implement their strategies at greater speed most
likely due to
their prime brokerage relationships.
On latency, the Acuiti survey found that the time it takes for an order to be executed
after it is placed remains an
important factor for all firms when expanding into new markets. It said this factor, in
fact, “remains
more important for prop trading firms, especially for the top tier shops, than
for other company types—reflecting their role in market making across global
exchange.”
To address
these challenges, the report notes that the trading firms are choosing to partner with
third-party providers to save cost, reduce market entry delay and support the maintenance of their business.
“These vendors often have long standing
expertise in the markets that firms want to enter and [have] established
connectivity rules,” the report noted. “They are also adept at providing low latency
connections, which is becoming increasingly important to a wider range of firms
beyond those traditionally focused on ultra-low latency connectivity.”
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Source www.financemagnates.com