singapore hotel: Singapore Exchange Seeks High-Frequency Traders: Southeast Asia

Singapore Exchange Ltd. (SGX), Southeast

Asia’s biggest bourse operator, wants to lure more high-speed

traders on to 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. SGX climbed as much as 0.7 percent

today, before closing 0.4 percent lower at S$7.38.

‘Pretty Substantial’

Bocker’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 editor responsible for this story:

Sarah McDonald at

smcdonald23@bloomberg.net

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