Alternative Trading Systems play a part in returning liquidity levels to pre-global financial crisis levels in the Asia Pacific region.
March 31, 2015 | Mobasher KazmiThe launch of the Hong Kong–Shanghai Stock Connect in the fourth quarter of 2014 marks another milestone in the gradual liberalisation of China’s financial markets. As we see the build-up of strategic alliances and more development in exchange connectivity, resolving operational challenges in clearing and settlement will take centre-stage this year.
The underlying compulsion for exchange linkages is understandable given the desire for enhanced liquidity. Recent trends in trading volumes, a useful marker in assessing the quality of markets in different jurisdictions, reveal a gradual return to liquidity levels last attained before the global financial crisis. Whether there will be a return to market equilibrium or strategic shift to a “new normal” remains to be seen.
One component of the interconnectivity puzzle that is often overlooked is the injection of Alternative Trading Systems (ATS) and their impact on market structures in the Asia Pacific. The rise in off-exchange venues has implications not only for exchange leaders themselves as liquidity is siphoned off, but could provide a very real possibility of a healthy competitive environment—a boon for all market participants. The Australian and Japanese experience has shown the rewards and benefits in terms of innovation by traditional exchange players following the introduction of ATS.
South Korea is well on its way to entering the next stage in the development of advanced market structures as it overcomes regulatory hurdles. Korea’s Financial Services Commission is well-advised to reconsider its present market share limitation on primary venue and individual stock trading. Providing an enabling environment for ATS means relaxing existing restrictions and widening options for participants as Korea remains a relatively retail-heavy market. More importantly, market users will be able to realise tang...
Categories:
China, Clearing & Settlement, Exchanges, Liquidity Risk, Markets & Exchanges, Risk and Regulation, RmbKeywords:ATS, Infrastructure Pipelines, OTC Derivative, Hong Kong–Shanghai Connect, FSC Korea
