Index arb traders get new DMA platform in Singapore

Credit Suisse rolls out its AES Velocity platform in the Lion City, with Australia next on the agenda.

Credit Suisse has gone live with a trading platform in Singapore that brings latency -- the time required to complete a trade -- down to below a millisecond. To 265 microseconds, in fact, in the case of one-way trades in Singapore (as speeds vary by market). That's a quarter of one-thousandth of a second.

This is the sort of thing that appeals to a niche set of clients, namely high-frequency traders, who exclusively rely on automation and algorithms to exploit tiny, short-lived market anomalies.

The AES Velocity platform enables such clients to trade directly on the Singapore stock exchange at the speed they require.

Given the small, illiquid nature of the Singapore market, this sort of speed will appeal mostly to index arbitrageurs. They specialise in buying or selling a basket of stocks and hedging it via futures, depending on whether they spot a discount or a premium between the basket and the index.

Singapore has a liquid index futures contract. Moreover, while the market is generally small, those names in the index generally trade $10 million a day or more. That's enough to enable index arb strategies to perform.

The launch is part of Credit Suisse's build-up of its electronic trading capabilities in the region. Australia is next on the list, scheduled to go live in another month or so. That market is big, liquid and inexpensive, with narrow spreads between bids and offers -- all unlike Singapore, which is small, illiquid and fraught with wide spreads.

A platform such as AES Velocity in Australia therefore opens up possibilities not just for index arb, but also for statistical arbitrage and market-making.

Hani Shalabi, head of advanced execution services (AES) for Asia-Pacific at Credit Suisse, says Singapore is the third market this year to be incorporated onto the Velocity platform. The bank rolled it out in Japan in January and Hong Kong in June.