With innovation rife across the emerging markets space, it should come as no surprise that plans for further investment are picking up pace. However, despite this, Joe Collery, head of trading at Comgest endorsed a measured approach whilst speaking at TradeTech earlier this week.
Joe Collery
“There has certainly been developments, particularly in electronic trading in these regions but I would still say perhaps proceed with caution because it can be difficult,” he said.
“[…] There is definitely an appetite for our money to invest in these areas because there is a fantastic growth story there but I think we would certainly feel a bit more comfortable trading these markets high touch where you just have those added pair of eyes in the market where the expertise are.”
Specifically, Collery highlighted the important role of portfolio managers and a proactive approach to forging those key relationships.
“Behind all this is the PMs that have done the leg work with the company itself, they’ve visited, they’ve walked the floor of the factory and they’re very comfortable in the structure of the business and then that gives the desk that added impetus to comfortably invest.”
Read more: The TRADE sits down with head of trading at Comgest, Joe Collery at TradeTech 2024
However, when it comes to the empirical execution, PMs should aim to be realistic the panel agreed, especially as regards to foreign exchange, trading day hours, and the ever-disputed settlement processes.
“You should put the systems in place first that allow for smooth straight through processing before you even begin to think about entering the area […] PM’s lead the way but note that there’s a time – three months, six months, whatever the case may be – depending on your internal set up to get this in place and create a realistic road map.”
Sandeep Sabnani, head of equities product strategy and growth at ION Markets, echoed this sentiment, highlighting that having a trusted technology infrastructure in place is paramount.
“You have to make sure that you’re not opening yourself up to operational or reputational risks while you’re trading in these emerging markets, there’s a high level of comfort that you need, and this picture is evolving. This picture is changing as we see more international players trying to access.
“What gives the buy-side the trust and confidence of ‘my execution is going to happen exactly as I expected’ you need the researcher side of course, but also from a tech standpoint that can give you a solid foundation to build your business on within these emerging markets.”
Read more: Two thirds of prop trading firms plan to trade new exchanges this year
Getting into the more granular details about the systems being put in place in order to enable the buy-side to seriously invest in the EM space, Fahad Al Ammari, head of cash markets development at the Saudi Exchange, shared that the story began nearly a decade ago with the country’s ‘2030 vision’.
“The Saudi Exchange plays an important role. There is a financial sector development programme within the country which involves all of the financial players,” he said.
“In the past decade, we’ve seen increase the number of investors and the number of listings we’ve issued, the qualified Foreign Investors Regulations was introduced 2015, which allows foreign investors to have direct access to the market and today we have 3800 foreign investors. In terms of liquidity, we’re seeing high growth, especially after Covid and today we’re seeing around 2.5 to 3 billion US dollars traded every day which is big.”
Read more: Saudi Exchange welcomes Merrill Lynch to growing list of market makers
Further delving into how stability and reliability are being baked into emerging markets systems, Sabnani highlighted the relevance of India’s recent shift to T+1 and the expectation for T0 and an eventual move to instant settlement.
With this in mind, the panellists agreed that when it comes to emerging markets understanding the minutiae of the different regions is of the upmost importance and something to be overlooked at firms’ own peril.
As Sabani explained: “What you’re trying to do here is you’re looking at two different sides of the coin. Markets want to grow, but then there’ll be interesting challenges such as different settlement regimes which is a very hot topic across the board […] what this means is for a broker it becomes extremely challenging to understand how to have multiple instruments settling in different settlement regimes or different currencies.”
The question ultimately becomes whether these players have the right infrastructure and systems to cope with that complexity. To trade in the emerging markets space, you must be aware of trading intricacies which affect trading hours, such as public holidays and other potentially unforeseen speed bumps.
“These challenges must be at the top of everybody’s list when you’re looking at the other global network,” concluded Sabnani.