A complex game of hide and seek
As asset managers lead the charge into Asia, buy-side traders are left grappling with the dual challenge of finding liquidity and disguising their intentions in markets that are not geared to accommodate large institutional orders.
Ben Dyson
Given the choice of the latest ‘covert’ algorithm designed to slice up an order or the means to trade a block of shares, most buy-side traders in Asia may well opt for the latter. “Time and time again, head traders would tell me: ‘These algorithms are good, but if you could find me a way to trade a block of stock you are going to add a lot more value’,” recalls David Klinger, head of Asia ex- Japan at Liquidnet, and a former head of AES Asia- Pacific at Credit Suisse.
Difficulties dealing in size are common. “For big institutional players or anyone who is trying to move large volumes of stock or implement a very aggressive investment call, Asia is a difficult place to find liquidity,” says Gabriel Butler, director of sales and trading at ITG in Hong Kong.
Consistently finding liquidity in Asia’s disparate markets has always been a challenge for traders. In a Tabb Group report, ‘Global equity trading: the buy-side perspective from connectivity to TCR’, published in February 2006, some 60% of Asian respondents cited finding liquidity as a major problem. The study may be almost two years old, but pinning down sufficient liquidity remains the overriding concern of traders. “It is a big issue,” says Klinger. “You speak to some traders and they have orders that sit on their blotter for weeks or months because they just can’t find the liquidity to sell it.”
“The liquidity curve is certainly different in Asia,” says Matt McKeith, head of equity dealing, First State Investments in Hong Kong. Whereas liquidity in largecap stocks can be plentiful, even allowing a $100 million order to be traded over the course of the day, the lack of market depth soon becomes apparent once traders start dealing in mid-cap stocks. Liquidity simply “peters out,” says McKeith.
The issue does not equate to market cap alone. Traders can find themselves swimming in shallow waters, trading names with high market cap that are disproportionately low in turnover.
The lack of liquidity in Asia can sometimes be overstated, according to Andrew Freyre-Sanders, head of algorithmic trading at JPMorgan Securities (Asia- Pacific). “There has been plenty of liquidity over the past couple of years,” he notes. However, he concedes that certain features and regulations make trading difficult, which in turn could dampen liquidity. “The reality is that spreads are high, volatility is high, and the liquidity has a habit of vanishing,” he observes. “There are microstructures in many Asian markets that can be friction points to getting in and out of stocks, which ultimately will attract cost and reduce liquidity.”
Source: http://www.thetradenews.com/the-big-idea/
Ben Dyson
Given the choice of the latest ‘covert’ algorithm designed to slice up an order or the means to trade a block of shares, most buy-side traders in Asia may well opt for the latter. “Time and time again, head traders would tell me: ‘These algorithms are good, but if you could find me a way to trade a block of stock you are going to add a lot more value’,” recalls David Klinger, head of Asia ex- Japan at Liquidnet, and a former head of AES Asia- Pacific at Credit Suisse.
Difficulties dealing in size are common. “For big institutional players or anyone who is trying to move large volumes of stock or implement a very aggressive investment call, Asia is a difficult place to find liquidity,” says Gabriel Butler, director of sales and trading at ITG in Hong Kong.
Consistently finding liquidity in Asia’s disparate markets has always been a challenge for traders. In a Tabb Group report, ‘Global equity trading: the buy-side perspective from connectivity to TCR’, published in February 2006, some 60% of Asian respondents cited finding liquidity as a major problem. The study may be almost two years old, but pinning down sufficient liquidity remains the overriding concern of traders. “It is a big issue,” says Klinger. “You speak to some traders and they have orders that sit on their blotter for weeks or months because they just can’t find the liquidity to sell it.”
“The liquidity curve is certainly different in Asia,” says Matt McKeith, head of equity dealing, First State Investments in Hong Kong. Whereas liquidity in largecap stocks can be plentiful, even allowing a $100 million order to be traded over the course of the day, the lack of market depth soon becomes apparent once traders start dealing in mid-cap stocks. Liquidity simply “peters out,” says McKeith.
The issue does not equate to market cap alone. Traders can find themselves swimming in shallow waters, trading names with high market cap that are disproportionately low in turnover.
The lack of liquidity in Asia can sometimes be overstated, according to Andrew Freyre-Sanders, head of algorithmic trading at JPMorgan Securities (Asia- Pacific). “There has been plenty of liquidity over the past couple of years,” he notes. However, he concedes that certain features and regulations make trading difficult, which in turn could dampen liquidity. “The reality is that spreads are high, volatility is high, and the liquidity has a habit of vanishing,” he observes. “There are microstructures in many Asian markets that can be friction points to getting in and out of stocks, which ultimately will attract cost and reduce liquidity.”
Source: http://www.thetradenews.com/the-big-idea/
posted by B2B India @ 12:25 AM
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