The unbundling of research and trading has been a discussion topic for many years both globally and in Asia. While in theory there are many good reasons to unbundle, the practical implications have often made it difficult for asset managers to do so. However now several important business factors are pushing Asia-based fund managers to review their processes and consider how they value research and trading, while using more sophisticated tools to manage and report on who and what they pay.
In Asia’s equity markets, liquidity continued to rise through the second quarter of 2013. This is a measure that combines turnover, spreads and volatility launched in 2008 with a notional value of 1,000. 2013 therefore has bucked the trend of 2011 and 2012, in which a strong performance for this liquidity indicator during the first quarter was not sustained into the second quarter.
In Asian equity markets, liquidity rose throughout the first quarter of 2013. ITG’s Asia Pacific Liquidity Indicator stood at 1,143 at the end of March, a rise from 1,110 in February. The trend was consistent across all Asian markets, but was particularly notable in Japan and Australia with the principal catalyst most likely the increased turnover in developed Asian markets during the quarter. ITG’s Indicator is a measure that combines turnover, spreads and volatility. It was launched in 2008 with a notional value of 1,000.
Starting May 26th the Australian regulator (ASIC) had new market integrity rules (MIR) relating to pre-trade transparency exceptions coming into affect. Rule 4.2.1 of ASIC MIR (Competition in Exchange Markets) was revised to introduce tiered thresholds for block trading (also known as “Block Specials” or just “Specials”), while also introducing meaningful price improvement exception to pre-trade transparency (replacing the “at or within the spread” exception) under rule 4.2.3.
Concerns about dark pools have come to a head and alternative markets in Asia Pacific are among those under scrutiny. This week’s edition of The Blotter explores this topic with a focus on the Australian market.
Asia Pacific liquidity fell through Q2, dragged down by bearish sentiment through the global equity markets and a general lack of investment momentum. The quarter finished with one of the lowest liquidity indicator readings of the past few years – this is only the second time since March 2009 and the midst of the global financial crisis that the liquidity indicator has dropped below 950.
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On June 26, 2012 Japan's financial markets regulator, the FSA, took another step to promote market competition by revising exemption from the 5% Takeover Bid (TOB) rule. This move may have a profound effect on Japan's Proprietary Trading System (PTS) providers over the coming months. This edition of The Blotter examines the history and development of PTSs in Japan and what this planned exemption may entail.
Following the liquidity and turnover slumps of late 2011, the start of 2012 saw turnover pick up in most of the Asian markets (p4). This drove a regional turnover increase of 16% quarter on quarter with a peak in February, though this was followed by a drop off in March back to a level just below the average for 2011. Transaction costs, which were stable through 2011 within the 40 to 50bps range, have remained at the lower end of this range through Q1.
Asian markets are looking increasingly like markets in North America and Europe. Recent years have seen increased use of algos, dark pools, and dark pool aggregation.
As we enter the New Year—with hopes of better volumes and a bounce for our industry—Jamie Selway provides his annual list of market structure predictions and marks the book on 2011’s blotter.