24 October 2017
Steve Grob

Fidessa Fragmentation Index

Steve Grob - Fidessa

137Posts 529,800Views 3Comments

Fragmentation Fever Goes East

06 January 2010  |  3707 views  |  0

Looks like 2010 is going to be a pretty interesting year in the battle for liquidity between the established exchanges and the more recently established MTFs and dark pools. It also looks like fragmentation fever is likely to spread eastward, too. This is being driven by a number of factors that include technology, regulation and commercial opportunism. The introduction this week of arrowhead by the Tokyo Stock Exchange will bring the performance of the TSE more in line with global standards and so open the door for the High Frequency community and brokers that can exploit microsecond price movements. This, in turn, will encourage the growth and use of PTSs (the Japanese equivalent of America’s ATSs or Europe’s MTFs). Currently PTSs only account for a fraction of Japanese equity order flow but the ability to arbitrage between them and the TSE may well provide the stimulus the market needs.

Meanwhile, the regulatory picture in Australia is set to change now that the Australian Securities and Investments Commission will have the ability to grant new exchange licences. This will open up its domestic market to other competitors and so allow Chi-X Australia, AXE and other alternative venues a realistic shot at gaining market share. Given that trading volumes are smaller than in Europe or the US, however, it will be interesting to see how much fragmentation the domestic Australian market can take and it would seem that any alternative venues will need to attract flow from other Asia Pacific countries in order to be truly viable.

The Singapore Exchange and Chi-X Global have joined forces to create the first exchange-backed dark pool in the Asia-Pacific region which will compete with the global dark pools already operated by the big banks. Put all these things together and they might be enough to set off a wave of fragmentation in that region. As we’ve seen in the US and Europe, once the change happens there’s no going back. Countered against this, of course, is the argument that without a single regulatory mandate for change across the whole region, the domestic incumbents should be able to fight off the newcomers one by one. This was certainly the case in Europe pre-MiFID where a number of well constructed initiatives (anyone remember Jiway, for example?) failed to wrest liquidity away from the primaries without the help of a regulatory imperative behind them. On the other hand, maybe the events of the past few years in the US and Europe have changed the trading landscape forever and so it is simply a question of time before we see a similar, fragmented, situation across the Asia Pacific region. Perhaps the biggest driver for change, however, will come from the big banks and brokers themselves. Having invested such huge sums in SOR and dark pool technology they will be keen to leverage this investment every way they can.

TagsTrade execution

Comments: (0)

Comment on this story (membership required)

Latest posts from Steve

Why you’ll never be ready for MiFID II

12 September 2017  |  4707 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

So that's nice and clear...

31 August 2017  |  5347 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Relocation, Relocation, Relocation

14 June 2017  |  5703 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

MiFID II - the best thing that ever happened?

08 June 2017  |  8725 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Be careful what you wish for

26 April 2017  |  5432 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulationGroupMiFID

Steve's profile

job title Director of Group Strategy
location London
member since 2009
Summary profile See full profile »
I am responsible for strategic development at Fidessa. This includes the development of new geographic markets and strategic partnerships and driving new industry initiatives. As part of this I head u...

Steve's expertise

Member since 2004
130 posts3 comments
What Steve reads

Who's commenting on Steve's posts