The Australian government's decision to permit Chi-X Global to operate a trading venue in Australia is the latest indication that Asia-Pacific is the new growth area for HFT. Final clearance is still pending, but approval in principle for the group's local subsidiary Chi-X Australia to open an alternative venue will break the monopoly enjoyed by the Australian Securities Exchange. It will also start a trend toward the fragmentation of liquidity; Liquidnet from the US, and AXE, a company backed by the New Zealand Stock Exchange, have also applied for Australian licenses.
Expect investment in algo trading infrastructure
Fragmentation is a prerequisite for the development of HFT strategies, according to evidence from the US where HFT was born in the 1990s, and Europe where it has expanded to in the last three years and is considered to be in the eye of the storm of the evolutionary process.
The Chi-X Australia development should also be set against a background of other events that point to increased competition generally in the Asia-Pacific region that laid the groundwork for HFT to move there.
First there was the Tokyo Stock Exchange's 4 January turn-on of its new Arrowhead matching engine developed with Fujitsu and designed specifically for low latency. Then there was the early February announcement of a deal for the technology arm of the New York Stock Exchange, NYSE Technologies, to build and operate an extranet called the ASEAN Trading Link for the four incumbent stock markets in the ASEAN region (Singapore, Malaysia, Thailand, and Philippines).
Competition in the provision of trading venues tends to fragment liquidity and drive HFT, which in turn means investment by market participants in the sell and buy sides in algorithmic development, and more generally in the technology to support automated trading.
Tactico, which is a shareholder in the Omega ATS venue in Canada, reports that US institutions have been dusting off strategies (algorithms) they retired three or four years ago in their home market for use in the more recently competitive Canadian market, and Ovum expects similar activity in the Asia-Pacific region.
