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Asian Trading, All eyes on Europe

Electronic trading trends in Asia

By: William Fenick

Great infrastructure, an education system that ranks in the top 3 worldwide, the Merlion, Raffles Hotel, and a gin-based cocktail - five things that spring to mind when you talk of Singapore. MiFID II, globalisation, regulatory arbitrage and reduced latency are perhaps less familiar subjects for the average visitor to this Republic, yet they promise to be mainstays of the agenda when Interxion, together with other industry stakeholders and leading commodities traders from around the world, meet at the London Metal Exchange's Singapore Gala on Tuesday 12 September, next month.

Situated just one degree north of the equator, Singapore is the commodities hub for the region and home to the LME’s Asian pied-a-terre. The commodities market is still relatively fragmented in many regions around the world, but the LME - and its technology partners such as Interxion - give local traders access to the global market and global prices. Of the c.147 Futures Commission Merchants in Asia, it's uncertain how many of those offer access to the international markets, what is clear is that the opportunities to trade globally, with technology partners that enable low latency connectivity between their home markets to where they need to trade, has never been greater.

While Asia has a natural tendency to look at the European commodities market for price (30% of the open interest resides in European markets), the Europe/Asia distinction matters less today than ever before. They are connected to each other - and the LME provides the obvious gateway between the two regions.

Then along comes MiFID II - and it seems that all eyes are on Europe. As part of an ever-growing set of regulation that is extra-territorial, MiFID II requires firms that wish to trade with Europe to comply with a number of conditions. By its very nature, Asian firms that wish to engage in the European markets aren't immune to the European regulations. In fact, with the MiFID II deadline approaching, there is a definite up-tick in focus on what it means for Asian trading firms.

View from the LME

According to Joe Vu, Head of Asian Electronic Trading at the LME, the next six months, whether you're in Europe, Asia or the Americas, "it’s all about MiFID II preparation." Asian firms are watching Europe closely to see how behaviours will change after January in areas such as derivatives structures, commission sharing and research costs - and once precedence has been set, the rest will look to follow.
So as we're discussing pleasantries over a Singapore Sling next month, avoiding those sensitive subjects that define today's 'jittery' geo-political environment, we will perhaps comfort ourselves over the 'opportunities' that have arisen from these turbulent times.

Regulatory arbitrage is now a subject on which this industry is increasingly familiar; as the market anticipates the cost implications of Trump's promised copper import tax, US copper is trading at a premium. Traders with access to markets outside the US, however, have access to the lower, global price. Choosing the best market on which to trade, at the best price, at the lowest latency, is part of what MiFID II is about. Best execution, even in the more traditional commodities business, perhaps leads us all to consider best partnerships as much as best technology.