UPDATE 1-FACTBOX-Asian exchanges rush to upgrade trading systems

(Updates with latest information from HKEx; adds link to main
story)

SINGAPORE, Aug 17 (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 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.
For a related story, click [ID:nSGE6790M9]

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
analyse 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 capitalisation after CME (CME.O: ), will
launch by end-2011 its AMS/3.8 trading system that can process
30,000 orders per second compared with its current capacity of
3,000 orders/sec.

The system is scalable to 150,000 orders per second, HKEx
said on Tuesday.

The Hong Kong bourse operator is also looking further ahead
to come out with a next generation system that can handle a
larger number of 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 (SGLX.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. [ID:nSGE65208Y]

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 centres 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)

UPDATE 1-FACTBOX-Asian exchanges rush to upgrade trading systems