Global broker UBS expects to expand its smart order routing (SOR) capability in Asia, launching in India over the next few months followed by Australia later in the year.
Up until recently the Asian market for SOR existed almost exclusively in Japan, where a number of proprietary trading systems compete with the incumbent Tokyo Stock Exchange and the smaller Osaka Securities Exchange.
The lack of competition in the exchange market has limited the adoption of SOR in the Asia Pacific region, notes Yang Xia, head of algorithms and analytics, Asia-Pacific at UBS, however this is changing.
“Within the Indian market SOR has been approved for use by the Securities Exchange Board of India. We have our licence application under review in India at the moment, and expect to get that live in a month or two,” said Xia.
“With Chi-X Australia's formal approval to operate, which was granted on 4 May, we expect to see competition there by the end of the year. We plan to go live with our SOR offering when Chi-X Australia launches, which they have said will be Q4 this year.”
The use of SOR in the country has fuelled supported the alternative venues,” said Xia. “There are certain days when 9-10% of the market for major stocks are traded on alternative destinations, although on average it is 2-3%. Still, the growth trend has been quite dramatic from well below 1% a year ago.”
Singapore and Hong Kong are likely to be the next markets to see SOR adoption according to Xia. A number of dark pools operate in Hong Kong although access to them is limited – UBS's own PIN dark pool, which also operates in Australia and Japan; and Chi-East, which covers Japan and Singapore, being joint-owned by the Singapore Exchange and Chi-X Global. However, there are no lit alternative venues in either Hong Kong or Singapore yet. Xia says Chi-X is expected to launch lit order book offerings in both in the future, which would create value for UBS's SOR service, although there is no timeframe for such markets to launch yet.