This article was written by Jock Percy, CEO at Perseus.
Despite recent headlines covering what many have dubbed a ‘meltdown’ in the Chinese economy, I am here to explain why western financial institutions should still consider Asian markets a fruitful opportunity. Remember that when it comes to China and the region, nothing is ever as golden and shiny as folks make it out to be, nor are things ever as bad or gloomy.
While the appeal of Asia may be a bit scary, with the help of advanced technology and innovative service providers, the fact is that moving or expanding your trading operations to these financial centres can be easy and inexpensive and make real sense for you business. How is that?
1. Less onerous regulation in the region means that it is cheaper to operate there than in Europe or the US.
MIFID II and EMIR requirements that are focused on shifting from voluntary to mandatory clearing of OTC derivatives, using an authorised central counterparty clearinghouse (CCP), and Basel III capital requirements in Europe, will put infrastructure and capital demands on every trading and clearing business operating in the region. The same is true for US-based organizations operating under the Dodd-Frank regime, who will be bound to mandatory clearing of OTC derivatives as well as the Volker rule, which is aimed at eliminating prop trading by banks and limiting speculative trading in general.
While reporting requirements certainly exist in Australia, Singapore, Hong Kong and Japan, these are much less onerous than their EU and US counterparts, providing a more attractive trading environment for western businesses. In addition, the rapidly growing financial centres of Hong Kong and Singapore boast new opportunities for western businesses to expand, offering many obvious benefits of moving into the region.
2. Major exchanges are already active in the region.
Asia may seem like a world away, but you will definitely not be blazing any new trails there. Capitalizing on Asia’s biggest importer of aluminium, CME successfully launched a new Japan aluminium premium contract in December. In Singapore, Intercontinental Exchange (ICE) opened in 2015, Eurex plans to launch an exchange this year and the Singapore Exchange (SGX) itself was named “Global Exchange of the Year” in 2015 by Futures & Options World magazine.
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Looking a bit farther into the future, Hong Kong Exchanges and Clearing has ambitions to expand into Mainland China and Chinese markets seem to be speeding up efforts in internationalization. Executed in parallel with China’s “One Belt and One Road” strategy, promoting Chinese futures and derivatives globally is just another aspect making Asian markets so attractive to international investors right now. Asia has now overtaken North America at the top of the Futures Market rankings with 7 billion contracts to 6.9 billion according to Euromoney Trade Data.
The region is already an active trading hub for both local and global investors, presenting even greater opportunity as more exchanges begin to follow suit.
3. You don’t need to build your own trading infrastructure.
Setting up new trading operations does not have to be a daunting task. Managed service providers have infrastructure in place to streamline the process and expedite access to new revenue. Leveraging a quality MSP will save you time and resources required to set up connectivity, exchange co-location arrangements, co-location, direct market access and data feeds, and can even help you source and maintain hardware in new locations.
Given the market volatility we have seen recently, one of the key benefits of outsourcing your infrastructure and connectivity is that you are not tied down by fixed ownership of expensive hardware and lengthy, binding contracts.
The best MSP can offer you the flexibility your business needs to move your services to new markets as opportunities arise and business objectives change.
So what’s stopping you?
All of the pieces are falling into place in Asia – dependable and global exchanges are setting up shop in the region and previously closed off markets are beginning to open up to international investors. With fast to market, low latency, low-risk trading infrastructure readily available across the globe, moving or expanding your trading operations to Asia has never been more attractive. Eliminate the need for large capital expenditures and inject flexibility and mobility into your business operations – all you have to do is devise your trading strategy. It doesn’t get much easier than that.