Singapore Exchange Ltd. (SGX), Southeast
Asia’s biggest bourse operator, wants to lure more high-speed
traders onto its stock market as it grapples with lower volume.
Computerized trading firms, which execute transactions in
fractions of a second, account for a negligible share of volume
on Singapore Exchange’s cash equities market, according to
bourse spokeswoman Loh Wei Ling, while they contribute 30
percent of revenue from derivatives. Singapore Exchange will
seek to change that once it introduces safeguards, Chief
Executive Officer Magnus Bocker said at a briefing this month.
“We will pursue high-frequency trading once we have
circuit breakers and other policies in place,” he said. “That
will enhance the liquidity and quality of the Singapore
market.”
High-frequency traders facilitate the majority of U.S.
equity transactions, where computerized firms have ample
opportunity to profit from fleeting price discrepancies because
transactions take place on more than 50 venues. Singapore isn’t
as fragmented, which keeps computer traders away. Credit Suisse
Group AG and Tabb Group LLC said the city’s relatively high
trading and clearing fees also deter those firms.
Bocker is seeking more business with the daily average
value of equity trades down to about S$1.5 billion ($1.2
billion) this year, a 36 percent plunge from 2007, according to
data compiled by Bloomberg. Singapore Exchange’s net income was
S$336 million for the fiscal year that ended in June, 20 percent
lower than fiscal 2007.
‘Pretty Substantial’
He’s been building the infrastructure and regulatory
framework to attract high-speed traders. The bourse rolled out a
S$250 million trading platform in August 2011 that can execute
transactions in 90 microseconds.
The exchange hasn’t been successful in attracting orders
from the fastest traders because of the high cost of trading in
the city, according to Credit Suisse and Tabb Group.
“There is a pretty substantial clearing fee in Singapore
that will stop many of the largest high-frequency traders,”
said Larry Tabb, founder and CEO of New York-based market
research firm Tabb Group. “The exchange fabric isn’t
fragmented, so that there will never be the kind of high-frequency trading that we see in the U.S. and or Europe in
Singapore.”
Fees for trading on the Singapore bourse amount to about 20
basis points, or 0.2 percent of the value of shares traded,
according to data compiled by Credit Suisse. That compares with
Sydney-based ASX Ltd.’s 15 basis points, the data show.
Speed Limits
“If SGX is serious about high-frequency trading, it could
change its fee structure to encourage more high-frequency
trading,” said Arjan Van Veen, a Hong Kong-based analyst at
Credit Suisse.
Australia, Hong Kong and Singapore have considered the
extent to which trading strategies that rely on speedy placement
of bids and offers should be regulated amid concern that they
can be used to manipulate prices. Germany was the first
developed market to legislate the practice, and the European
Parliament is pushing for tougher rules.
While circuit breakers provide the market a mechanism to
take a pause during times of extreme market volatility, allowing
high-frequency traders will introduce unfamiliar risks to
investors, according to Securities Investors Association of
Singapore, the largest investor lobbying group in Asia.
Good, Dangerous
“A knife is good as well as dangerous,” said David Gerald, president of SIAS. “The exchange and manufacturers of
products will put out products to improve their bottom line.
Investors must know the risks and decide for themselves whether
they want to invest or not. There are many products out there
which are very risky and investors have to be educated on the
risks and they must make an informed decision.”
One of the hallmarks of high-speed trading has already
arrived in Singapore. The bourse has about 100 clients that
house their trading computers near the exchange’s servers, an
arrangement known as co-location, spokeswoman Loh said. That
lets them speed up trading by cutting reaction times.
“We have said in the past that high-frequency trading
accounts for roughly 30 percent of our derivatives market,” Loh
said. “SGX has announced previously that we will enhance market
safeguards before opening up the cash equities market for high-frequency trading. These include random opening and closing
routines, pre-trade risk controls and circuit breakers.”
Trading Safeguards
Regulators worldwide have evaluated safeguards since the
May 2010 plunge known as the flash crash briefly erased about
$862 billion from the value of U.S. equities. Exchanges in that
country have since implemented a limit-up/limit-down initiative
that prevents market makers from quoting shares at prices deemed
too far above or below current levels.
SGX will introduce circuit breakers by early next year
after a plunge in shares of three commodity companies erased
$6.9 billion in market value over three days, the bourse
operator said on Oct. 10. Under the proposal, trading of a stock
will be halted for five minutes if it moves 10 percent in either
direction, the bourse said.
Since becoming CEO in December 2009, Bocker scrapped the
midday trading break and introduced dual listings of American
Depositary Receipts at SGX to boost profits. Brokerages are
turning less bearish on the company, with the number of sell
recommendations at the lowest since 2011, according to data
compiled by Bloomberg.
Getting high-speed traders to operate in Singapore will
improve liquidity and market efficiency, Tabb said.
“The more liquidity and the more trading generally makes
the market better, lowers trading cost and helps smaller
investors,” Tabb said. “Generally, it doesn’t make the market
more risky unless it becomes as complex and fragmented as the
U.S. market.”
To contact the reporter on this story:
Jonathan Burgos in Singapore at
jburgos4@bloomberg.net
To contact the editors responsible for this story:
Sarah McDonald at
smcdonald23@bloomberg.net;
Nick Baker at
nbaker7@bloomberg.net
Singapore Exchange Seeks High-Frequency Traders: Southeast Asia
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