HFT Firms’ Unable to Replicate Success in Asia

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Despite repeated attempts to penetrate equity markets in the Far East, high frequency trading (HFT) accounts for only 12 percent of all value traded on Asian exchanges, excluding Japan and Australia.

Far different from U.S. and European markets where regulation fostered electronic trading and thus HFT, exchanges in Asia have been hesitant to adopt the same type of competition that leads to millisecond trading. In fact, much like recent moves in Italy and Germany to slow high frequency traders, Hong Kong and South Korea both impose taxes of 0.1% and 0.3% respectively which make HFT strategies highly unprofitable.

However, some firms have moved into derivatives markets which tend to be regulated far less than their equity counterparts.

“The focus and attraction is the derivatives markets, where there are fewer restrictions,” said John Fildes, chief executive of alternative trading platform Chi-X Australia.

..Nikkei futures and options listed in both Japan and Singapore are popular among high-frequency-trading firms. Korea Exchange said that some 78% of quotes in its Kospi 200 Options market are from high-frequency traders, while Singapore Exchange Ltd. said roughly 30% of trading in its derivatives market, including Nikkei futures, was by these firms.

Many HFT firms have come to the region in hopes of being profitable, but some have failed and were forced to leave. Getco, still stinging from an 81 percent profit decline in Europe amid halving of industry-wide profits there, closed its Hong Kong office in March of this year. So too did Dutch firm IMC, as they shuddered their operations and relocated it to Australia.

While it’s not for certain the trend will remain this way, for now these markets are more concerned with integrity and protecting retail investors than they are catering to deep-pocketed, high frequency traders.

“We are quite concerned about [high-frequency trading] as it can affect market stability in a negative way, and retail investors feel they are at a disadvantage because of the big [high-frequency-trading] firms,” Chang-geun Yun, business development manager at Korea Exchange’s derivatives market

HFT Firms' Unable to Replicate Success in Asia

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