However, domestic brokers who want to capture a more international portion of the market share, are now faced with the decision of whether to invest in infrastructure to be able to compete with peers and global counterparts operating in the same market. Global brokers often have an advantage by being better equipped, since they leverage off of a global infrastructure. Like the exchanges, domestic brokers need proper systems to handle orders efficiently. It is a major commitment as it usually represents a significant investment. Added to this is the uncertainty of whether the rewards will justify the costs. However, as institutions in emerging markets continuously seek to improve and enhance their workflow, they become more aware of the availability of systems to help achieve their goals.
The shift in the mindset of the exchanges, as mentioned earlier, is also pushing domestic brokers to provide electronic execution services. And, as execution systems become more readily available, the adoption rate for electronic trading among domestic institutions has also increased. More emphasis is put into enhancing workflow, streamlining systems and straight-through processing. In some markets, there has been a threefold increase in the number of brokers (FIX and non-FIX) connecting to the Bloomberg equity order routing network.
Through media, peers and information services, domestic institutions are also starting to appreciate the benefits of having more control and clarity in their executions and transaction costs. It is a cycle that will feed itself as there is more awareness, exposure and adoption. Gradually, the market will accept this as the new norm.
The rate of change is hard to gauge, and is unlikely to be consistent across Asia’s emergeing markets. What we do know is that, while most emerging markets will not move toward full electronic trading or order routing in the immediate future, there is considerable progress in this area. We anticipate that trading over the phone and electronically will co-exist for some time, but the landscape has changed dramatically from the days when we only received strange and disinterested looks when mentioning “electronic trading”.
CASE STUDY:
The India experience
The market for direct market access (DMA) trading went ‘live’ in the fourth quarter of 2008. A FIXGlobal conference was held around the same time in Mumbai to herald the event. An initial group of brokers led the way by investing in systems and getting ready for this new phase. Considerable effort was put in by all parties – exchanges, regulators and brokers – to ensure the electronic trading launch was a success.
Although it did not start with a bang, because the start coincided with the global stock market downturn, brokers we speak with now are very satisfied with the volumes since the turn of the year. Furthermore, they are optimistic that volumes from electronic trading will only grow moving forward.
Encouragingly, the growth is not just from foreign institutions because domestic institutions are starting to consider this option. The success from the first group of brokers has also convinced and prompted many others in the broking community to start providing the same services. In this context, we can see how a competitive market can spur and help further develop electronic trading.
