Gaining Functional Parity Requires Overcoming a Complex Tapestry of Regulatory, Currency, Tax and Technological Hurdles to Support Market Demand
Largest Opportunities for Western Traders Exist within the Most Open Markets of Japan, Australia, Hong Kong and Singapore
The Year of the Tiger has seen an unprecedented focus on the capital markets of the Asia-Pacific (APAC) region based on a growing interconnectedness and interdependency between the East and West. In a new research report issued today, “Trading in Asian Derivatives: Opportunities Near and Far,” TABB Group says the APAC derivatives markets are big and continuing to grow larger, currently capturing 35% of global volumes in the region.
According to E. Paul Rowady, Jr., TABB senior analyst and author of the report, 99% of commodity and 100% of FX derivatives volumes are in closed or challenged markets with 100% of rates and 31% of equity-linked derivatives volumes in the open markets in Japan, Australia, Singapore and Hong Kong. There, exchanges with the most highly integrated trading platforms across asset classes are expected to top the list, including the HKEx, SGX and ASX.
He also points out that “in aggregate, 85% of the derivatives volume is now based in markets that represent closed or challenged access from western traders, in China, India, Taiwan and Korea, e.g., the KRX, ZCE, MCX and TAIFEX. At TABB, we believe that Chinese exchanges will remain off-limits to active foreign trading strategies for the foreseeable future, with India in the same category due to factors related to poor infrastructure and the prohibitive regulatory environment, there.”
Achieving functional parity with the West will ultimately require, he says, overcoming a “complex tapestry of regulatory, currency, tax and technological hurdles.” These challenges fall into two categories, the regulatory environment surrounding direct foreign investment and implementing appropriate technology to support market demand. As Rowady explains, the catalyst driving change today has more to do with a growing sense of interconnectedness and interdependency between East and West. “A tipping point has been reached, made possible by acceleration of technical investments at APAC exchanges and a greater openness to foreign market participants.”
As to which country or exchanges are in contention for a pan-regional leadership position, Rowady says there is no clear leader. “Six of the top 11 global financial centres are in the region. TABB believes that Singapore has emerged as the leading candidate to become the financial hub of the Far East.”
Looking ahead, Rowady contends that “the opportunities for derivatives trading in APAC will continue to unfold at an increasingly rapid pace, particularly as a growing global community of stakeholders establishes virtual and physical footprints in the region. Closely monitoring alliances between Eastern and Western exchanges is an effective means to deduce the next moves on the chessboard. Above all, evidence is building for western-based traders to become much more engaged in the region’s increasingly accessible derivatives markets.”
The 19-page report with 20 exhibits examines the current landscape and challenges for derivatives trading in the Asia-Pacific region and how it is adapting to the demands for greater access from the West and consideration for improved market functionality from the East. It also focuses on the technological challenges that must be overcome to expand the spectrum of trading strategies that are possible in the region and around the globe. Exhibits include global financial center rankings and outlook; indications of openness; East-West alliances; and exchange rankings by market capitalization.
Other recent Asian-related TABB research includes ASEAN Equity Markets 2009 and Asian Equity Trading 2009.
The report is available for immediate download by all TABB Research Alliance Derivatives clients and pre-qualified media at https://www.tabbgroup.com/Login.aspx.
