Caplin Systems were one of the 30+ sponsors at the FIX Protocol trading summit in Hong Kong on May 23.
The SGX reported very good news in their recent quarterly earnings announcement with the majority of the rise in revenue attributable to derivatives.
The interesting part of the derivatives growth is the fact that SGX lists many non-Singapore equity index futures contracts. In fact, the fastest growing contract in the quarterly report is the future on the Nikkei 225.
I read an interesting post back in January (here) that claimed the SGX Nifty contract had 68% of the total open interest of all available Nifty futures contracts. My thought at the time was “why would the majority of interest in a future on an Indian domestic equity index be offshore?” Time for more research!
And a key driver of that growth appears to be the comparative trading costs of Singapore vs the domestic market for the specific contract. As an example, this article shows that the cost of trading the Nifty on the SGX is less than half that on the NSE!
And then there is the regulatory impact
The Securities and Exchange Board of India (SEBI) banned participatory notes (p-note) in October 2007 (a p-note allows an investor to trade without registering with the SEBI) which led to a marked increase in trading in the SGX contract.
Even though the SEBI then lifted the p-note ban a year later, a significant share of trading stayed on the SGX. Additional uncertainty exists from an investor’s perspective w.r.t. the general anti-avoidance rules in India as well. Some commentators have suggested that the FX component is also of importance as the NSE Nifty contract is delivered in INR whereas the SGX contract is delivered in USD.
What do the investors want from the contract?
Exposure to the Indian equity market. To be able to trade efficiently – quickly & in a cost efficient way. To be able to enter & exit positions quickly. To know that the regulations are not going to change in a way that will add costs to the trade process.
For markets, once a significant amount of liquidity (measured by open interest & traded volume) moves to a venue then that liquidity becomes (1) self-generating & (2) sticky as long as the regulatory regime for that venue is stable. When the markets are electronic, that move can happen very quickly. Which is what happened when the Bund contract moved from LIFFE to the DTB (a good summary is here).
This dynamic should be understood by regulators when they view the global financial marketplace and is not limited to their efforts to avoid regulatory arbitrage. The individual market participants, whether buy-side, sell-side or execution venues will compete to provide the most efficient service possible. When that service is electronic, the competitive force is instantaneous and the successful participants will adjust to that force in the same time frame.
In their efforts to implement Dodd-Frank, it would appear that the CTFC are guilty of not thinking about the data they would receive as part of the SDR requirements. Commissioner Scott O’Malia gave a speech to the SIFMA Compliance and Legal Society on March 19 where he said:
“Since the beginning of 2013, certain market participants have been required to report their interest rate and credit index swap trades to an SDR.
Unfortunately, I must report that the Commission’s progress in understanding and utilizing the data in its current form and with its current technology is not going well.
Specifically, the data submitted to SDRs and, in turn, to the Commission is not usable in its current form. The problem is so bad that staff have indicated that they currently cannot find the London Whale in the current data files. Why is that? (more…)
Our man in Singapore, Randy Hebert, and I were among the 700 or so delegates that attended the 52nd ACI World Congress which was held in the Marina Bay Sands Conference Centre, Singapore from March 14-16.
Much has changed since the ACI World Congress was last held in Singapore in 2001, when Singapore also had the unique privilege of hosting the first World Congress of the new millennia, in particular the growth and increased significance of Asia to the World economy. It is now estimated that Asia, and especially the People’s Republic of China accounts for over 60% of global growth.
Caplin clients at the ACI event included Standard Bank and Citi Velocity. Caplin Trader was featured at the Progress Apama booth giving delegates the opportunity to see a complete e-commerce solution with Apama providing aggregation & rate management with Caplin Trader for client distribution.
The conference featured presentations on topics such as the future of banking in Asia, financial regulation, and the impact of China and the rest of Asia on the financial markets. (more…)
If you haven’t seen it yet, there is an updated internet trends presentation on the KPCB website.
IMHO, most interesting is the chart of internet traffic in India (page 16), where mobile is now the predominant internet access method. The infrastructure costs of a wireless vs wired distribution favour wireless. If the relative cost savings are passed on this will promote mobile internet access and increased demand for functionally rich smartphones to facilitate that access. So the observed trend towards mobile access will continue, not just for India but for all countries where wireless is cheaper/easier to access.
And what are the actual mobiles being used? StatCounter has the stats – as per the following chart. Nokia is still very popular as in Africa but using Series 40 phones and the Nokia browser but the chart shows that Android market share is increasing.
Compare this to the results in China, where the predominant mobile OS is Android. And then look at the Android growth in the original KPCB presentation on page 10 – growth is nearly 6 times that of the iPhone! If the unit cost of Android smartphones remains lower than the iPhone, I expect this trend to remain not just for China but for many other geographies which is why the global trend towards Android phones will continue – have a look at StatCounter for the figures. From a software development perspective delivering solutions to many different platforms/operating systems, one more reason to deliver native web apps.
Like many people who have been in the markets and technology for a long time (in my case, pre big bang in London), I’m perplexed by what happened at Knight yesterday.
As per usual, my first visit was to Nanex to discover the “what”, so now I’m trying to find the “why”, e.g., why would a legging algo trade at market, why didn’t the strategy P&L show the problem immediately? Various theories here and here but no clear explanation yet.
It’s a hell of a way to lose $440m!
The Economist released their latest Big Mac index yesterday. This view compares the current value with that in July 2007.
Curious to see the diversity in the BRICS (no measure this time for India – perhaps they decided that the Maharaja Mac is no longer fungible) – Brazil at a premium but Russia, China & South Africa all at discount in absolute (Big Mac) value, Brazil & China up and Russia & South Africa down in relative Big Mac value. According to my very brief currency rate comparison, only CNY has devalued since July 2007.
More detail here.
Niall Ferguson was the BBC Reith lecturer this year. For those of you who haven’t heard it, the subject of the second lecture was “The Darwinian Economy”, where he reflected on the causes of the global financial crisis, and argued that many people have drawn erroneous conclusions from it about the role of regulation.
You may agree or not with his conclusion but his point that “excessively complex regulation is the disease of which it purports to be the cure” is well argued.
iPlayer Podcast of the lecture is here. A transcript of the speech is also available on the site.
I have been following the Basel III regulations for some time. As always with regulation of this breadth & importance, there is lot to discuss but it seems there has been an immediate impact on funding for the “real” economy, i.e., project and trade finance. (more…)