At Asia-V’s panel on the challenges and opportunities for cross border trading and clearing in the region, Managing Director Sharon Shi from G.H. Financials talked about how her global customers are thSecinking about access to trading in China. She said that, unlike earlier when customers were deciding whether they wanted to get involved in Chinese markets, institutional customers are now evaluating how to do it.
G.H.’s customers from outside the region are watching closely as Chinese regulators modify and streamline the Qualified Foreign Institutional Investor (QFII) programs that have existed since 2002. According to Shi, the customers are looking at whether the legal environment created by the reforms will provide them enough protections for them to feel comfortable to trade in China.
Institutions are also concerned about what she called “policy risk”: whether Chinese regulators and exchanges will be sufficiently transparent and consistent in their approach to foreign investors and traders.
Her customers look at costs and want to be sure that they understand all of them before getting involved. Finally, the institutions she deals with are trying to determine the best technological ways to access Chinese markets. Should they build networks to support algorithmic trading and high frequency trading now or wait for clearer statements about when, or even if, direct market access (DMA) will be offered. When a decision might be made about DMA is unknown. According to Shi, “Timetable is a very tricky thing,” an unsettling thought for someone investing in trading infrastructure.
Shi was echoing earlier remarks by Natasha Xie, a Shanghai-based partner in the law firm JunHe. In a discussion about applications by proprietary trading groups for access to Chinese markets under the QFII programs, she said the regulators are very aware of the lengthiness of the process. And it is still not clear what Chinese products they will have access to. Pointing to progress by foreign institutions getting involved in a recent securities lending transaction, she warned that the question of timing hangs over the reforms and said that in this way, China is still an ”emerging market.”
Eurex and CME presented strikingly different approaches to opportunities in the Chinese market. Mezhgan Qabool, head of Eurex’s Asia Pacific efforts, listed a number of engagements that have kept Eurex’s parent Deutsche Boerse busy over the past ten years, extending from data to trading products.
Qabool’s remarks indicated that Eurex’s achievements in the region were built on its highly successful trading links with Korea and Taiwan whereby Eurex provides after hours trading for their headlining products. These after hours markets attract both international and local interest. Eurex, which recently stretched its trading day, has also seen increased interest from Asia in its own key interest rate and index derivatives.
CME’s Managing Director for Asia, Christopher Fix, noted that trading volume out of Asia onto CME was about 4.4 million contracts per day on average. Fix rattled off a number of other statistics about American and other countries’ trade with China, pointing out that CME Group exchanges offered trading and hedging opportunities in the industrial metals, oil, corn and soybeans that China imported. Fix was confident about the importance of the Chinese market to CME and was optimistic about its potential to grow.
John Buckley, COO Asia for Citadel, echoed the others’ excitement about prospects for trading in and with China. While Citadel remains ensconced in Hong Kong, Buckley noted that China “ticks all the boxes” for a company like Citadel. Like Singapore, Australia, and Hong Kong, China can provide Citadel with access to excellent talent, markets, products and clients.
Buckley does still have a wish list for the region, noting that the Korean and Taiwanese exchanges (which happen to be the ones that use Eurex for after hours trading) could stand some modernization by, for example, allowing give-ups, which are otherwise available in the region. He also said that exchanges should work with their members to implement self-match protections and that the industry needs to provide more education about the benefits of algorithmic and high frequency trading so that they can be regulated appropriately.
The panel was expertly guided by Russell Beattie from Bank of America Securities. He got right down to business with his well-prepared panelists and kept things moving.