THE Singapore Exchange has partnered Singapore Telecommunications to offer high speed trading that is expected to draw more sophisticated proprietary traders such as hedge funds to the market here.
By August, global investors will have ultra-low latency trading access or sub-millisecond access to the SGX securities and derivatives markets.
Latency is the time lag between the moment an order is initiated to confirmation. One thousand milliseconds equal one second and currently access is between 4 and 20 milliseconds.
The new service, the first in Asia, is responding to demand from a growing segment of algorithmic and proprietary traders who are beginning to establish a strong presence in Asia, said Gan Seow Ann, SGX senior vice-president and head of markets.
Algorithmic trading, also known as black box trading, is the use of computer programmes for entering trading orders.
'This new service caters to the needs of algorithmic and high velocity traders, where speed of access is crucial,' said Mr Gan.
' The growth in this market segment will enhance SGX's market liquidity and depth.'
Bill Chang, SingTel executive vice-president for business, said: 'For the first time in Asia, trading at the speed of light has become a reality. This solution enables hundreds of financial transactions to be executed in the blink of an eye.
'It offers overseas financial institutions superior access to markets in Asia and it will attract more trading firms to Singapore and further strengthen our position as a major financial hub.'
The SGX estimates that 10 per cent of securities and 15 per cent of derivatives volume originate from algorithmic trading.
In the US and European exchanges, 35-40 per cent of volume come from these participants.
'This segment will add a new dimension to the marketplace which we have not seen before,' said Mr Gan.
Even in bear cycles, this group of traders who don't look at fundamentals but 'trade intraday, intra-hour or even intra-minute, will hopefully give you a base.'
He said that such traders look at very short-term trends or arbitrage opportunities, or track correlation stocks, to make money when trading.
In about two weeks' time, SGX and SingTel will head for London to jointly market the new service to key players there.
Rama Pillai, SGX senior vice-president and head of intermediaries and market access, said that he expects to sign up at least 10 new clients such as proprietary trading firms, including hedge funds.
The new service will cost about $15,000 a month for the standard set-up, not far from the existing service, said Mr Pillai.
Both SGX and SingTel declined to reveal their respective investment costs or the revenue sharing arrangement.
'At the end of the day, the pot of gold we recover is not the fee, it's to capture this group of market,' said Mr Gan.
This article was first published in The Business Times on May 21, 2008
