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Business

Technology Provides Opportunities for Asia Trading Efficiencies

Technology Provides Opportunities for Asia Trading Efficiencies 3

Technology Provides Opportunities for Asia Trading Efficiencies 4By Jeff Mezger, Vice President of Product Management at TNS

TNS is a leading provider of mission-critical infrastructure, connectivity and market data services for the Financial Markets community. Following the launch of TNSXpress Layer 1 technology in Japan and Singapore, TNS’ Jeff Mezger, Vice President of Product Management, Financial Markets discusses the adoption of ultra-low latency in Asia and why speed matters.

Global investors trade billions daily and behind every transaction is a labyrinth of networking infrastructure technology that converge in one location: the data center. Service providers offering remote data center space and connectivity are on a quest to provide a uniform global experience to ensure trading in Asian venues such as Singapore or Tokyo is the same as trading in London or New York.

What is Ultra Low Latency for Trading?

Trade execution speed is extremely important for profit and loss, and competitive advantage comes from having the best communication links to hardware in the best location. Low latency is vital for algorithmic trading. Among many factors that affect latency, hardware location and network connections are key to successfully achieving the lowest latency possible.

Ultra-low latency Layer 1 technology inside the data center enables firms to access execution speeds that are up to 10 times faster than traditional layer 3 architectures. It remains the most advanced solution, eradicating the need for multiple switches by using a simple, single hop architecture to deliver connectivity in as little as 5 to 85 nanoseconds, impressive when you consider that the human eye takes 400 nanoseconds to blink!

Why is Asia on Catch-up?

Low latency within the data center and between data centers has been the norm in the US and Europe for years. “Yes, there is nuance detail as to how data centers are laid out in New York versus London, but they are pretty much on par from a low latency technology perspective,” comments Mezger.

Asia has historically been later to adoption than the US and Europe for multiple reasons, with a key one being the dependency on the sophistication of the exchange technology itself. What platform is used? What rules are in place for the access to market? How is the market data feed gathered?

In the US and Europe these are largely homogenized, they more or less have the same rules of engagement, while the same cannot always be said for Asia. There are differences, for example, from a connectivity perspective, where some Asian exchanges will not allow a service provider to supply client connectivity for order execution, the customer has to order this themselves from the exchange. In the US and Europe service providers can get one exchange connection and do everything through that. This however impacts how service providers design a low latency solution, particularly in terms of the efficacy of a Layer 1 offering and has contributed to a slower roll out of low latency technology in Asia.

Geography Matters

In Asia there are more markets and more geographic dispersion than in the US and Europe. Service providers need to have a regional presence in Asian markets, for TNS this means people in Singapore, Tokyo, Mumbai, Hong Kong, Bangkok and Seoul. These teams are local and know how to do business with vendors and exchanges in each region.

Asia is generally more expensive right now, especially from a telecommunication or local circuit perspective. This is even more evident in markets outside Tokyo, Hong Kong and Singapore. As a result, heads of electronic trading need to carefully consider if trading opportunities are predicated on arbitraging spread between markets, as if so, they will also need to bring multiple markets data to that local venue.

In Asia, where capacity is costly, that can be a challenge. Working with a service provider can help reduce overheads, as they can bring the data required across the network once and distribute it to an infinite number of customers. Thus, costs can be mutualized across all customers, versus the customer doing it themselves, paying directly for large, expensive circuits.

Differing Rules and Regulations

In Europe, exchanges use different technologies, but this has not been an issue for the participants. Whereas in Asia some platforms have limitations on how many quotes per second can be provided, limiting a trader’s ability to execute on a high frequency trading strategy. Asia currently has 120+ exchanges, each one with different rules, different regulatory regimes, different onboarding requirements and different paperwork. The homework required for non-domiciled firms wanting to access specific markets in Asia can be overwhelming. Plus, this often needs to be revisited because rules and regulations change.

There are clear cost and operational benefits to working with a trading support and data center specialist. Such companies have shopped amongst the data center telco venders in each region to confirm who has the quickest routes. Outsourced providers also provide access to a local suite of services including order routing, market data access and the procuring, installing and managing of trading infrastructure links. Working with a specialist can make the process of trading in Asian markets less stressful and more efficient, with a single point of contact and 24-hour access to technical expertise.

Japan and Singapore Dominance

Clients from the US or European markets, dipping their toe into Asia for the first time, are often looking to access the FX markets in Singapore or Tokyo. However, the barriers to entry can be high, with Asian exchanges filled with tier one firms with very deep pockets, whereas smaller brokers are less able to afford access to the same technology. Outsourcing providers can help such firms by offering them scalability that matches their budgets. The current 45% tax rate in Japan is also a factor to consider for trading firm profitability, this needs to be lowered to make the market more competitive, something the Japanese Government is looking into.

In the meantime, Singapore provides a key gateway for global investment managers seeking to raise assets and invest across Asia’s financial markets. In Q1 2021, Singapore already had the most ASEAN Private Equity and Venture Capital focused fund managers in the world, a 28.3% increase year-on-year to 313 fund managers. This is more than double the number in the rest of Asia Pacific. The city is also rapidly growing its advantage as the largest FX center in Asia Pacific and third largest in the world. In 2021 alone, key FX providers Deutsche Bank, Nomura and RBC launched e-FX trading engines in the city.

Capitalizing on Asian Market Growth

The opportunities in Asia are boundless and working with an expert infrastructure, connectivity and market data services provider allows companies to focus on their business. Working with an experienced, managed service provider, one who offers the latest Layer 1 architecture, global market data and local resources can mean the difference in profit and loss. Combine all these factors with comprehensive customer support means that you should expect uninterrupted, seamless trading from day one in Asia.

TNS’ infrastructure brings together over 2,800 financial community endpoints to address the needs of financial market participants worldwide. Traders using the company’s Managed Hosting solution benefit from global point-of-presence footprint and extensive existing on-net connections, including uninterrupted access to more than 60 exchanges with local, physical support around the globe. For more information visit tnsi.com

Jeff Mezger is Vice President of Product Management at TNS with responsibility for its managed services for the financial industry. He oversees product development and strategy for market data, online and datacentre services.

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