derivatives
three quarters. The firm has around 200 M&A bankers across the continent following 2009’s acquisition of Close Brothers Corporate Finance, who are increasingly seeing interest from small- and medium-sized Asian firms looking at very targeted deals in the west. The economic recovery in the US holds an entirely different set of opportunities. On 14 January 2013 Phillip Futures, the Chicagobased full-service futures clearing entity of Singapore’s Phillip Capital, and Trading Technologies (TT), a global provider of derivatives trading software and solutions, announced a deal building on the parent firms’ existing Asia-centric distribution agreement and coinciding with the launch of Phillip Futures’ US-based trading network. It offers co-location access to CME Group’s (CME) data centre in Aurora, Illinois. TT’s platform has integrated with Phillip Futures’ back-office and proprietary third-party applications. The firm is also in the middle of a registration process to trade retail foreign exchange product. Phillip, one of the largest futures brokers in Singapore with more than US$18 billion in global assets under management, expanded TT’s X_TRADER platform to a growing US customer base, while offering Asia-based customers the ability to trade futures products in the US. The network offers the firms’ mutual customers low-latency access to TT-supported markets traded through the CME Globex platform including interest rate, equity index, FX, metals and energy products. Teyu Che Chern, CEO of Phillip Futures Pte Ltd. commenting says: “We do see growth in US markets and compared to 2008 we’ve see tremendous growth of our business going into the US side at between 100%-200%”. The firm, which was recently ranked in the top 50 (34th) amongst other CME member firms has seen customer segregated funds approach a figure on that close to US$200m. Che Chern commenting on the future says: “We are still optimistic. As Asia further opens its doors, there will be more new customers trading into the US markets.”
“...as the Asia market opens up there will be more new customers trading into the US markets.” - Teyu Che Chern, CEO of Phillip Futures Pte Ltd
wanting to expand from their traditional areas/ regions into the US and European markets. They definitely have an appetite given that the nature of trading is now entirely global.” According to McDonnell, TT is currently in discussions with “some of the biggest banks in Asia looking to expand their operations and to take exchange memberships.” McDonnell cautions however that the bigger deals are “unlikely to happen overnight.” It is not only historical lessons that will lead Asian firms to act with caution. Chiman observes that “significant barriers” to entry exist that include differing cultures, politics, legal and organisational issues. “First and foremost, Asian brokers need to ascertain who is it they wish to become as they gradually enter into the global arena,” he says. “Do they hold on to their national culture, which has provided them with significant advantages, or do they relinquish it to embrace a more multicultural organisation as a prelude to their engaging in foreign markets?” For firms that have a clear sense of direction and growth strategy, technology is making the expansion of operations relatively simple. Asian institutions going down an expansionary route can exploit ‘Points-of-Presence’ (POPs) in the ground in overseas territories or opt to be colocated in data centres where an exchange’s matching engine resides. They will also start to build their own branding in the US and Europe and get all their risk management controls tested and in place before commencing trading business. McDonnell adds, “Some of our customers and particularly the bigger Singaporean banks
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are in the process of getting memberships of the larger exchanges – CME included. Many of them are already members of LIFFE and Eurex. And, Australian banks too with strong balance sheets are making moves into what they see are potential weakening within the futures commission merchant (FCM) and the clearing space in the US and Europe.” Part of the draw will be the ability for firms to exploit alpha opportunities between locally traded derivatives products and those traded outside of Asia. Che Chern notes, “Those [exchanges] that offer an arbitrage opportunity between similar Asian products and those tradable on western markets will see increasing activity. As long as there is a value proposition, clients and traders will take the plunge and switch to similar products on different exchanges.” Take COMEX gold contracts versus many of the gold contracts offered on Asian exchanges. “There’s a natural arbitrage between the two. Perhaps traders are using COMEX prices as indicative prices or for market making on the Asia side,” he adds. “Customers could be trying to arbitrage between some of the Asian markets such as MCEX. As some Asian contracts like gold, copper and energy are similar to those in the US, customers may want to hedge out their exposure into the US markets where there are similar products like gold, copper and energy.” Whilst previously the copper market used to be dominated by LME copper he says “increasingly there is a significant shift from traders migrating to COMEX copper instead of hedging into LME copper.” Having been in Singapore since 1975, Phillip is positioning itself as a “gateway” for clients who want to access the Asian region. “Equally we want to be a gateway for Asian investors seeking to tap overseas markets and it is a platform strategy to meet the needs of the new Asian customers. With a local presence in most of Asian countries we aim to add value for those who want indepth knowledge.” The gates to the west are open for Asian firms wishing to expand; however economic uncertainty and a wealth of experience mean that new paths should be trodden carefully. Chiman says, “This is an eventual trend that will accelerate, although the Chinese investment banks will need to build up their competencies on this front first before expanding beyond their traditional comfort zones.”
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The start of something big Robbie McDonnell, managing director for Trading Technologies in Asia Pacific, reflecting on the Phillip deal, says, “It’s a very distinctive move and I don’t think it will be the last such foray into the US or Europe. And, I definitely see this as the beginning of a trend. I’m aware of a number of Asian banks with strong balance sheets
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www.asiaetrading.com z Q2 2013 z Asia Etrader
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