BNP Paribas Securities Services’ head of client development, Barnaby Nelson says new services such as third-party clearing have given broker dealers much more choice: “Future developments, such as the launch of Chi-East (see below) seem set to exacerbate existing pressures. The market is changing so fast, that brokers are struggling to keep up with the demand for new solutions. The squeeze is happening all the way along.”
The trend is most evident, naturally, amongst smaller brokerage firms, some of whom have already made the move to outsource operations to third parties. From a management perspective, the benefits of outsourcing increasingly outweigh the drawbacks, given the continuing pressure to move fixed costs to variable and to focus on time-to-market as firms expand throughout the region.
Of those questioned in the BNP Paribas survey, carried out in association with SWIFT, 60% were institutional brokerages and 40% retail. For the larger brokerage firms, brand recognition is a key reason against outsourcing. Many local firms especially value the having their name on the trade ticket, even in the institutional space.
This view is supported by the ‘bricks and mortar’ approach, where Asian brokers consider local, in-house operations to be a core part of their business in each market.
Nelson says, “Although there is clearly an increasing acceptance of outsourcing, respondents were clear on what remains to be delivered in this space. Although limitations such as the local stamp duty reporting are accepted as being beyond the scope of most outsourcing providers, 29% of brokers asked to see more outsourcing agents who can fully manage the settlement process. That includes all dealings with custodians; and 13% highlighted the need for agents to manage client security and data on their behalf.”
In August 2009, Chi-X Global joined forces with the Singapore Exchange (SGX) to develop and launch the first exchange-backed non-display venue in Asia. Chi-East will act as an independent liquidity aggregator for the sell side and an execution option in the form of a non-display venue that will expand the range of available solutions for conducting block transactions with price improvement.
It will specialise in securities listed in Australia, Hong Kong, Japan and Singapore. Chi-East expects that participants trading on the platform will be able to provide their clients with better execution options, including reduced market impact, tighter spreads, low latency as well as cost-efficient clearing and settlement processes. As an independent liquidity aggregator, Chi-East will also allow sell-side firms to access deeper liquidity by crossing their internalised trade flows with each other.
As an exchange-backed trading venue, Chi-East will maintain full post-trade price and volume transparency through public data providers such as Bloomberg, Thomson Reuters, Sungard and Fidessa. Chi-East, through LCH Clearnet, will also support the first Central Counterparty Clearing (CCP) model in Asia. Japanese and Australian stocks will be cleared by LCH Clearnet, Singapore securities will be settled through SGX’s Central Depositary (CDP), while Hong Kong listed stocks will continue to be cleared under the local clearing infrastructure.