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Liquidity Is At the Heart Of Asia’s Latest Trading Evolution

By Michael Corcoran, CEO, ITG Asia Pacific The pendulum has finally swung to a model where buy-side trading is a valued function in its own right, so brokers must adapt to serve their clients effectively. In Asia Pacific (APAC), institutional trading costs are typically higher than in other regions and have a material impact on fund returns. Fund managers with good Asia trading performance are saving an average of 50 basis points versus those with poor trading performance—enough to move a fund from negative to positive return over the past three years.1 As returns have compressed, managers have needed to look increasingly at reducing the costs of how they put their investment decisions into action. Additionally, best execution requirements are now being driven onto managers not just by regulators, but by investors globally requiring high standards and demonstrable proof of efficient trading processes. Backed by the sweeping changes spreading across borders from Markets in Financial Instruments Directive (MiFID) II’s requirement to unbundle research from trading, the slow drip of asset managers overhauling their APAC trading desk processes has become a constant stream. 1

This new model makes the sole objective of a buyside trading desk the delivery of efficient execution to maximise the investment return, rather than a payment mechanism for other activities. At more APAC firms than ever before, buy-side trading is now considered an activity in its own right, with a discrete existence as a cost and value centre. Particularly now that the shackles of directing trades for research obligations are being unlocked, the pressure on buyside trading performance is stepping up to new levels. A new service model ITG’s execution-only brokerage model has always placed excellence in trading performance as its top priority, but we too must evolve as our clients’ requirements change. We have seen a particular shift in the value placed on liquidity sourcing, and a more pragmatic approach to the broker coverage model to help service those liquidity needs. Buy-side desks increasingly expect a high-touch sales trading style of service from their electronic coverage, suggesting the term “low-touch” should be wiped from the trading dictionary. Our independence and execution-only focus have allowed us to quickly respond. In Asia Pacific, we

Trading cost data sourced from ITG’s Global Peer database of more than 180 buy-side institutions. Fund managers with Asia trading performance in the top 30% save an average of 50 bps versus managers with performance in the bottom 30%. When mapped against annualized performance rankings from Morningstar Fund Selector Asia-ex Japan equity funds, the cost savings over three years, versus fund performance, can move a fund from negative to positive return, and from the 51st to the 38th percentile of performance ranking.


2017q1 ebook  
2017q1 ebook