European proprietary trading firms and hedge funds have set their sights firmly on the APAC region, as they look to expand derivatives trading in the region thanks to the “significant opportunities” represented there. The survey reveals that while firms have engaged with major players such as Japan, Hong Kong, Australia and Singapore (the easiest market to connect to), they are now increasingly connecting to emerging frontier markets across APAC.
APAC is the fastest growing region for listed derivatives trading with volumes up more than 80% year-on-year. While firms have engaged with major players such as Japan (the most commonly traded market in the region), Hong Kong, Australia and Singapore, they are now increasingly connecting to emerging frontier markets across APAC. The new study by Acuiti and Trading Technologies (TT), European Attitudes to Trading in APAC, was based on a survey of senior executives at 53 European-based proprietary trading firms and hedge funds.
Acuiti managing director and founder Will Mitting said: “APAC is the fastest growing region for listed derivatives trading volumes, and that is fueling interest in trading in the region among European proprietary trading firms and hedge funds.
“At the same time, many exchanges have invested in technology and processes designed to make it easier for international trading firms to connect and trade. This is creating a virtuous circle of growth that is set to continue.”
TT CEO Keith Todd said: “Trading Technologies has long recognised the tremendous trading opportunities in the APAC region. This study clearly demonstrates that these opportunities have only grown. European hedge funds and proprietary trading firms are among those poised to benefit as they learn more about how to navigate some country-specific challenges through education and the right partnerships.”
Looking at China, whose listed derivatives markets see average monthly trading volumes in excess of 4bn contracts, accessing the country’s markets is still a challenge for international trading firms, the survey found. However, Chinese authorities have made efforts to expand liquidity, by increasing access for foreign investors. Perhaps because of this, the country was seen as having the most potential for growth over the next three years.
Of those surveyed, 59% traded derivatives on markets in APAC with a further 11% set to start doing so while 37% of respondents who traded on markets in APAC said that trading in the region was more profitable than on markets in Europe. Firms trading Indian onshore markets reported the highest profitability from trading in APAC. Looking ahead, equity options were commonly cited as having potential with commodities, fixed income and FX also featuring highly.
Despite the opportunities, finding the right local partners and understanding local rules were the top challenges cited by survey respondents. Another major challenge for proprietary trading firms was gaining access to regional derivatives markets via their preferred clearing firm.
Technology is less of a hurdle, the survey found, as over the past decade, third-party front office vendors have made investments in expanding connectivity to exchanges in APAC, cutting the cost of entry for clients when it comes to engaging with new markets. Despite these advancements, 40% of firms trading in APAC had to work with a new clearing firm to do so.
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