Advances in technology and connectivity have significantly accelerated global participation in Sydney’s liquid futures market writes Matthew Lempriere, our Head of Asia Pacific
Almost 15,000 kilometres of land and ocean lie between Chicago and Sydney, making the two cities about as far apart as any of the major financial centres. In previous generations, it would have been almost inconceivable that a Chicago-based trader could easily access Australian securities or vice versa.
Yet now, with little more than the click of a button and the use of a low-latency network, traders can quite literally cross the globe in a matter of milliseconds. Global financial markets are becoming more interconnected by the day, opening up valuable opportunities to look beyond domestic markets in the search for returns.
Futures attract global interest
For Sydney’s futures market, the opportunity to attract global participants has been particularly valuable, with recent growth being driven almost exclusively by offshore users leveraging low-latency connectivity to access the Australian market. The technology has removed location and time zone barriers, making a seemingly remote market much more accessible.
Last year, Australia’s primary securities exchange, ASX, replaced its proprietary trading platform with a new one that is much more consistent with global standards.
I spoke recently with some of the team at ASX and they explained how the platform overhaul has accelerated the internationalisation of the Australian market, leading offshore proprietary and algorithmic traders to explore new opportunities in Australia.
David Raper, executive general manager for trading services at ASX said;
“Traditionally our market was not front and centre of people’s minds from a trading perspective because the physical distance and time zone made it difficult for them to connect and participate, but the new platform has helped remove those differences.”
User driven market
Ease of access in isolation is not sufficient to incentivise overseas users, however – they also need an economic reason to trade.
Given generous employer contributions, Australia is among the largest holders of pension fund assets in the world, with approximately two-thirds of an estimated $2.9 trillion managed by superannuation funds typically invested in diversified portfolios.
Maurice Farhart, ASX’s head of international sales, explained to me that a shortage of fixed income securities has actually served to bolster liquidity in futures.
“While equities, commercial property and cash are freely available to invest in, Australia has a relatively small pool of fixed income assets available with only $500 billion or so of Commonwealth government bonds on issue.”
Given the scarcity of government debt, many funds use ASX 24 bond futures as a proxy. This has bolstered liquidity and turnover, making ASX futures the largest futures market in Asia, excluding China.
Given the majority of trading in the ASX futures market is instigated by end users, this makes it much more attractive to proprietary trading firms that prefer investor-driven liquidity. The combined effect of this end user participation and the advances in technology have brought many more global players, particularly US firms, to the Australian market.
The increased use of co-location facilities has added to the influx, removing the need for firms to find their own data centres and manage infrastructure locally. The Australian Liquidity Centre, ASX’s purpose-built data centre, hosts more than 100 customers and has helped to put Sydney on the map, deepening the connection to multiple liquidity venues around the world. Adam Bradley, global head of sales for connectivity services at ASX, said;
“If you wind the clock back to before we had a co-location facility, any of those firms interested in our futures market would have had to find their own data centre and their own connectivity and manage that infrastructure themselves.”
Getting connectivity right
For any firm eyeing an offshore market, whether a Chicago prop trading firm wanting to trade Aussie futures or a Sydney-based hedge fund trading US government bonds, selecting the right connectivity provider should be the first consideration.
There are numerous options available, but firms need to be sure they have a resilient network to connect them to the desired location without undue additional costs or resources.
There is an advantage to using a provider like us that is solely focussed on networks for the global financial services community with award-winning low latency and has continuously invested to optimise its network to satisfy the requirements of market participants.
At BSO, we are uniquely positioned to eliminate physical distances and lower barriers to entry, bringing traders quickly and easily from Chicago to Sydney, and beyond.