The launch of Credit Suisse's ultra-low-latency direct market access (DMA) service in Australia marks an extension of the bank's efforts to cater for high-frequency traders in Asia-Pacific, a region where the hurdles of providing such services are as diverse as the opportunities they seek.
Credit Suisse's Advanced Execution Services (AES) Velocity platform offers one-way latency times as low as 300 microseconds for Australian Securities Exchange-listed (ASX) stocks.
“Australia is a very important milestone for this service because the majority of high-frequency traders would see Japan and Australia as leading priorities,” said Hani Shalabi, head of AES for Asia-Pacific at Credit Suisse. “High-frequency traders tend to use automated trading strategies that generally operate on very small profit margins. One hindrance to these strategies operating in Asia is cost, but traders in Japan and Australia incur the smallest overall costs in the region by a wide margin.”
Australia is the fourth market in the Asia-Pacific region in which Credit Suisse has launched AES Velocity, following introductions into Japan in January, Hong Kong in June and Singapore in July. The corresponding one-way latency figures for Japan, Hong Kong and Singapore are 200, 600 and 265 microseconds respectively. By comparison, the typical human reaction speed is around 150 milliseconds, or 500 times slower than AES Velocity's one-way latency in Australia.
“While Japan and Australia are probably the easiest to enter for the high-frequency traders, Hong Kong, Singapore, Taiwan, Korea and India are also necessary venues for some of these investors. In terms of speed in Asia, anything under one millisecond is very good,” Shalabi added.
With low-latency trading in Asia complicated by geographical distance, Shalabi said it was necessary to build seven or eight systems to offer high-speed DMA across Japan, Australia, Singapore, Korea, Taiwan and India and possibly China. “This is in contrast to the US, where telecoms connections are so fast that, as long as you have, say, one presence on the east coast and one in Chicago, you can trade all of the US markets from those two places with no loss of performance. In Asia, the expense of building out the technology is quite onerous,” he added.
Market estimates put the share of high-frequency trades in overall stock market volumes at 20% in Australia and 30% in Japan. By comparison, corresponding estimates for the US and UK exceed 50%.
The growing prominence of high-frequency trading in Australia has led the Australian Securities & Investments Commission (ASIC) to impose tighter controls on brokers that allow hedge funds to use their systems for high-frequency trading as part of its moves to ensure proper standards are met for such trades.
The launch of the Tokyo Stock Exchange's low-latency trading platform Arrowhead in January this year, and the scheduled introduction of ASX's PureMatch in mid-2011, will boost opportunities for high-frequency traders in their respective markets. The ASX currently executes over 10 million equity trades per month with an average daily value of around A$5 billion.
Other regional stock exchanges are also starting to embrace high-frequency trading. The Stock Exchange of Thailand is reportedly inviting bids for a contract to replace its trading system with one that would cut trading speeds and provide new surveillance and market data services.
In India, the National Stock Exchange started offering co-location services to its members in August 2009, while the Bombay Stock Exchange followed suit in early 2010.
“The rules and regulations in each market are very different. Whether you’re allowed to do absolute co-location or whether you’re only allowed to do proximity hosting are just two of the factors that can make it challenging to introduce ultra-low latency DMA,” he said. “Korea and Taiwan are also very important markets, but currently a lot of high-frequency traders tend to shy away from these markets because of the impact of taxes on overall costs.”