Published

December 2022

A swift acceleration in high frequency trading across Asia is driving demand for direct access to data across the region’s markets. And where many prime brokers were once focused on bringing U.S. markets to Hong Kong’s algorithmic trading community now, it’s “all about China”.

It’s a dynamic that will see new arbitrage opportunities for traders, with infrastructure required to support their needs.

In response, ICE has stepped up its investment into North Asia with a multi-million-dollar expansion to a financial network that connects the world’s largest institutions. The investment in ICE Global Network will add capacity for clients in Shanghai, Hong Kong and Tokyo as one of Asia’s only full-service providers - from hosting and managed services to connectivity and market data.

“It’s direct market access for high frequency traders in China,” says Alston Hsu, director of connectivity and feeds for ICE in APAC. “It’s hosting, which is relevant to market makers in Tokyo. And it’s ultra-low latency circuits for the trading community more broadly.”

ICE Global Network offers clients the same technology that underpins its own operations across the globe, including the New York Stock Exchange and ICE Futures. As part of this expansion, customers will be able to utilize the ultra-low-latency connectivity built by ICE Global Network between Illinois, Tokyo and Shanghai, and between Shanghai and Hong Kong. These highways will allow clients to quickly move market data and trading signals across boarders or regions.

Magnus Cattan, who heads ICE Data Services in the Asia Pacific, says the extra investment in the region is being driven by the rapid growth of trading and local markets in places like Hong Kong, China and Japan.

Part of the growth is due to Hong Kong’s well-established Stock Connect program that has opened trading between Hong Kong and mainland China markets, allowing each to trade the other’s securities using local brokers and clearing.

The Connect program, including the more recent ETF Connect, has seen more firms in Hong Kong wanting to trade broader markets across China. Yet this is typically done through a third party.

Cattan says: “What we’re looking to do, is bring that data directly from China so you get lower latency – bringing the domestic content from China into Hong Kong”.

But perhaps a larger driver of growth is the rapid maturation of Chinese markets.

“Anecdotally, five years ago prime brokers were focused on bringing U.S. markets to the hedge fund and alternative trading communities in Hong Kong,” says Cattan. “Now, it’s all about China.”

Guangzhou’s Futures Exchange started operations this year and plans to trade commodities like silicon, lithium and rare earths. The Beijing stock exchange went live last year with a goal to serve smaller companies.

“These are not just new contracts coming to market - they are literally new exchanges,” says Cattan.

This is creating opportunities for traders.

“The contracts traded on these exchanges are domestically focused, but they look like other contracts traded in Europe and America.

“This creates trading opportunities between different markets.”

Cattan points to the Shanghai International Energy Exchange’s yuan-denominated crude oil futures that launched in 2018.

“This is a domestic contract for oil in China – but it has some similarities to other oil benchmarks.

“When new contracts like this come out it creates arbitrage opportunities for traders.

“We’ve seen that with other commodity exchanges as well – there’s metals trading in China and most recently, a switch towards equities given the volatility in the markets.”

Chinese interest in HFT has grown rapidly, centered around Shanghai. Cattan describes these traders as a diverse group, including individuals set up as high frequency traders alongside sophisticated larger firms.

Elsewhere in the region, Tokyo is growing from a different stage of maturity.

“Tokyo is targeting the ETF community. There are many ETFs in Japan and Japan Exchange Group is offering incentives to market makers,” says Cattan.

The incentives – alongside the growing investor interest in ETFs – are attracting firms back to Japan.

Cattan notes different growth drivers across Asia led ICE to build a comprehensive offering to cater for diverse needs.

Hsu says the investment recognizes that trading firms face unique challenges in Asia.

For starters, the Hong Kong Exchange’s server co-location service is limited to half- or full- rack options, which lifts costs. This means firms need to find vendors willing to share hosting. An even bigger challenge is the fact that firms often try to avoid setting up in China itself and instead prefer to trade from Hong Kong. This can make direct market access to China tricky.

Those firms willing to enter China need support – partly for language barriers, but also for finding a partner with local expertise, says Hsu. Chinese firms trading the US and Europe need assistance too, and ICE Global Network connects them to the world’s markets.

Cattan says the expansion of ICE Global Network is the single biggest organic investment the company has made in Asia in the past decade

“Our goal is to be a full-service solution. Co-location, hosting, managed services, support, historical data, direct market access and ultra-low latency, resilient circuits with multiple backups. That’s the kind of investment we’re making.”