SGX working on solving clearing and settlement issues

Singapore Exchange may be improving its technology to increase trading speeds and liquidity, but it is aware that clearing and settlement remains an issue.

Singapore Exchange (SGX) will go live with new technology to boost trading speeds in the coming year, but some market participants are concerned that the exchange’s clearing and settlement fees remain high and are complex to execute in a pan-Asian context.

It’s a good thing that SGX is improving the front-end trading platform, but that doesn’t address the issue of clearing and settlement, says John Fildes, Singapore-based director of strategic development for Asia at electronic trading and market-making firm Getco.

He was responding to a presentation given by SGX chief information officer Bob Caisley at the Trading Architecture conference in Hong Kong yesterday.

The concern is that back-office developments need to keep up with faster trading solutions, adds Fildes. He cites the fact that SGX’s cash clearing charges are the highest of all the developed Asian markets, and Chi-East -- a joint-venture dark pool between Chi-X and SGX -- has a very complex process for clearing and settlement.

Caisley agrees that clearing and settlement is one of the issues to solve for the Asean exchanges, and says SGX is working with its Asean partners on coming up with a solution. “We are well aware of inter-exchange connectivity and are looking at it,” he adds.

Moreover, market participants have commented that SGX made a smart move in partnering with Chi-X to set up Chi-East. The joint venture is the first Asia-Pacific exchange-backed dark pool for trading securities listed on SGX, Hong Kong Exchanges and Clearing, Tokyo Stock Exchange and Australian Securities Exchange.

“Some exchanges view venues like Chi-X as significant competition – and they are,” says Caisley. “So rather than letting Chi-X eat our lunch, we talked to them about us eating it together.”

“We’re also hoping to attract new participants,” he adds. “We know we have customers who want to trade in a dark pool, so why not get involved ourselves?”

SGX also hopes to attract more international trading members through points of presence (POPs) it is placing in data centres in key liquidity trading venues such as London, New York, Chicago and Tokyo.

A further move to increase its attractiveness to potential members is SGX’s plan to bring in new hardware and software to increase trading speeds and liquidity. These will come online in the third quarter of 2011.

Caisley says benchmark tests are showing response times -- from receipt of transaction on the exchange infrastructure to the time it is returned from the matching engine back to the edge of the exchange infrastructure -- as low as 90 microseconds while processing 40,000 transactions per second. SGX is very pleased with this performance, as Nasdaq OMX –with the fastest cash trading platform in the world – currently registers an average response time of 143 microseconds.

Meanwhile, in April , SGX plans to introduce new, faster co-location services – whereby trading firms’ servers are located right alongside the exchange’s matching engine. The aim of co-location is to provide the lowest latency possible, thereby narrowing spreads and boosting liquidity.

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