One of the latest movers into electronic trading in Asia, Barclays Capital, is looking to mount a challenge in what is a nascent business in the region.
The plan is to have an e-trading platform up and running in Japan by the end of the year, says Michael Kim, Asia-Pacific head of equities electronic trading in Tokyo. After overseeing the development there, he will relocate to work on the business in Hong Kong, probably later this year.
The bank has been hiring aggressively, having taken on 10-15 people in sales and trading across Asia including Japan in the past few months, says Kim. The firm is "pretty much at the end of the cycle" for both Hong Kong and Japan in terms of taking on staff, he adds.
Kim says Barclays Capital's relatively late move into the business is an advantage. "We're starting from a blank sheet to some extent," he says. "So we have the advantage of thinking outside the box in some ways and incorporating the latest models [from the start]."
As a result, the bank is going for a more "service-orientated" rather than the traditional exceptions-based model, says Kim. That is why it's hiring traditional sales traders to the e-trading desk; they will provide "colour, investment advice and trading ideas", he says. Most of Barclays Capital's rivals are still in the exceptions-based category, making them "more reactive than proactive", says Kim.
Investors are increasingly demanding this type of service, in that they're expecting more traditional services to be incorporated into joint-service offerings, he says. They want to have portfolio analytics, real-time monitoring of algorithms and so on, alongside the ability to interface with traders on the electronic desk on how to execute an order, adds Kim.
Moreover, the fact that Barclays is not starting from the internalised broker-dealer model has also benefited the firm, says Kim. For example, it runs its high-touch and e-trading business together, without the kind of competitive silos at other firms. Many banks run those businesses by client type, he adds, whereas the UK firm can access all its high-touch clients through the e-trading desk. That means it does not suffer from territorial issues over client ownership between the two businesses, says Kim.
Barclays Capital has a suite of products that came with the purchase of Lehman Brothers in the US, including algo engines, internal crossing engines, pre- and post-trade analytics and so on. Kim says these tools are being localised and deployed in Asia.
As for the e-trading markets in Asia, Kim reckons alternative venues will pick up Asia-wide at some point, but says the region is still a year or two behind Europe, which in turn is a year or two behind the US. And he acknowledges that such trading platforms will never outgrow the exchanges in terms of volumes.
Japan is the market closest to embracing alternative venues. "Regulations there are not too restrictive from a dark-pool and alternative-venue perspective," he adds. As a result, dark pools are becoming more important and venues like Chi-X are gaining traction there.
Rules are one thing, though, and the readiness of participants is another. For example, some of the local buy-side trading firms do not have smart order-routing, says Kim, and such obstacles mean take-up is proving a lengthy process.
Another issue is that there is not yet a significant benefit for those trading off-exchange, he adds. But dark pools do offer the advantage of anonymity, and market participants assume that volumes and liquidity will pick up, says Kim, "so they want to be in the game".
Australia is the next optimal market for crossing networks and dark pools, says Kim because it's starting to relax operations -- for example, by allowing off-exchange trading through alternative venues like Chi-X. The regulator has also now allowed these venues to clear through a separate counterparty other than the exchange.
Singapore Exchange is further behind, he adds; it has a joint venture with Chi-X, called Chi-East -- but only for the sell side -- and beyond that, the authorities have not licensed any other venues to trade Singapore stocks.