The large number of broker relationships that buy-side traders must contend with is a big issue in Asia, and the situation doesn’t appear to be easing, say fund executives. That's despite a trend in recent years for broker-dealers to reduce the number of sales traders they have in each market.
For one brokerage that deals in 10 geographic markets, a buy-side trading desk is likely to deal with up to 10 individual contacts, notes Derek McCole, Asia-Pacific head of equity dealing at Aberdeen Asset Management*. That compares to one broker contact for pan-Europe trading.
“At your top 10 brokers [in Asia], you could be speaking to 100 people, and that’s not even including the guys for algos, program trades and ECM,” he says. Reducing it to, say, six for each broker would simplify matters, he adds, but that would mean losing some local knowledge and coverage.
That said, cost pressures at brokerages have forced a reduction in the overall number of sales traders, says McCole. Most desks across the region are getting by with the “bare minimum” of sales traders.
But he has not yet seen desks being consolidated across different markets. “That would be a big [negative] statement to make to local [institutional] clients.”
In some ways, this may suit McCole, since his team has moved to using a lower-touch approach these days. “They can still do [the high-touch approach, incorporating more frequent broker calls and updates], but we don’t find so much value-add in it.”
He has a number of other suggestions he feels would improve Asian trading – which reflects those proposed by many other long-only dealers.
One is a minimum resting time for orders. “When it gets down to milliseconds, with orders being withdrawn so quickly, that damages confidence in the lit market,” he says. “You don’t know if it will be real if you try to deal against it.”
McCole also wants to see more flow move from dark to lit venues, arguing that the benefits of dealing in small size in dark pools are outweighed by the lack of depth in the market.
Also on his wish list is a ‘message tax’ – a levy on every order that appears on the screen and is withdrawn. “It’s not a level playing field when there’s that difference in latency, with some players trying to determine who’s in market by flashing orders and then withdrawing them – I don’t think it’s acceptable.”
In terms of the market fragmentation experienced in Europe and the US, McCole suggests Asia can learn from this. “A consolidated tape is vital – I’d like to see everything print on the exchange.”
*For a profile of Aberdeen’s Asian equity dealing desk, see the upcoming (June) issue of AsianInvestor.