FACTBOX – Asian exchanges rush to upgrade trading systems

SINGAPORE (BestGrowthStock) – Asia’s biggest stock exchanges have invested heavily in new systems to attract high-frequency traders and fend off expected competition from alternative trading platforms such as dark pools.

Dark pools, which have become increasingly popular in the West, allow brokers and fund managers to place and match large “buy” and “sell” orders anonymously so as to not to influence the share price.

The operators of these systems are keen to expand in Asia, having gained large market shares in Europe and North America.

Following are steps taken by the region’s largest bourse operators: Tokyo Stock Exchange (TSE)

– TSE launched its new $140 million Arrowhead stock trading system in January this year, allowing it to execute trades in 5 milliseconds (5/1,000th of a second), compared with up to 3 seconds in the case of the previous system.

The new system, built by Fujitsu (6702.T: ), will also reduce the time taken to distribute stock price and quote information to 3 milliseconds.

Arrowhead puts the Tokyo bourse in the same league as the New York and London stock exchanges, which attract a large number of high-frequency traders who use complex algorithms to analyze market data and place orders.

In step with the launch of Arrowhead, TSE has cut tick sizes — the smallest increment by which a stock can move — and widened daily price limits to allow stocks to rise or fall by a larger amount in one day.

Hong Kong Exchanges and Clearing (HKEx)

– HKEx (0388.HK: ), the world’s second-largest listed exchange by market capitalization after CME (CME.O: ), will launch by end-2011 its AMS/3.8 trading system that can process 15,000 orders per second compared with its current capacity of 3,000 orders/sec.

The Hong Kong bourse operator is also looking further ahead to come out with a next generation system that can handle 100,000 orders per second and improve its connectivity to market players in China.

HKEx did not say how much its investments in technology will cost.

Currently, there are about ten dark pools operating in Hong Kong with a combined market share estimated at less than 3 percent of total stock trading.

Hong Kong law prohibits the use of alternative platforms to trade Hong Kong-listed shares, except via automated trading services (ATS) that are registered with HKEx. These ATSs must report and clear their trades through HKEx, a Hong Kong Securities and Futures Commission spokesman said.

Singapore Exchange (SGX)

– SGX (SGXL.SI: ) said in June it is investing $250 million ($183.6 million) in a new trading system that will be the world’s fastest when it comes online in the first quarter of 2011.

Called Reach, the new system will allow trades to be executed in 90 microseconds or 0.09 milliseconds, down from 3-5 milliseconds currently. A microsecond is one millionth of a second, while a millisecond is one thousandth of a second.

The new system uses technology developed by NASDAQ OMX (NDAQ.O: ) (.OMXC20: ), the previous employer of SGX CEO Magnus Bocker. Reach will have connections to data centers in New York, Chicago, London and Tokyo to reduce transaction costs and processing time for customers in these cities.

SGX has also teamed up with Chi-X to launch what will be the first exchange-backed dark pool in Asia. The 50-50 joint venture, called Chi-East, will initially allow trades in selected equities listed in Australia, Hong Kong, Japan and Singapore when it starts operating some time this year.

Shares of Singapore-listed firms are held in the city-state’s Central Depositary, a unit of SGX that keeps track of changes in share ownership, making it difficult for dark-pool operators to bypass the incumbent operator.

ASX

– Australia’s ASX (ASX.AX: ) announced earlier this year that it will roll out a new system that will let it increase its trading capacity to more than 5 million trades per day by the end of 2010 from 2 million currently.

The Genium INET platform developed by NASDAQ OMX will also allow ASX to cut the average time taken to execute a trade to 250 microseconds (or 0.25 milliseconds) from 3 milliseconds currently.

ASX has also created its own dark pool offering called VolumeMatch that will allow traders to anonymously match buy and sell orders above A$1 million ($892,900) with a fee of just 1.5 basis points.

Chi-X has already obtained a provisional license to operate in Australia when the market is open some time next year.

(Compiled by Kevin Lim and Lavrina Lee)

($1=1.120 Australian Dollar)

($1=1.362 Singapore Dollar)

(Editing by Muralikumar Anantharaman)

FACTBOX – Asian exchanges rush to upgrade trading systems