Daiwa unveils next generation e-trading platform in Asia

Daiwa Securities SMBC is the latest bank to set up an enhanced electronic trading platform in Asia, despite growing criticism of dark pools.

Daiwa Securities SMBC on Friday revealed an improved electronic trading platform in Asia, which offers a range of tools for its institutional clients to trade in Australia, Hong Kong, Korea, Singapore, India and Taiwan.

The tools include algorithmic and Direct Market Access (DMA) trading, a crossing engine and a smart order router (SOR). The Japanese investment bank plans to hire a dozen extra professionals in Japan and Hong Kong to serve clients across the region, bringing its total staff in Asia focusing on electronic trading to around 25 people. Daiwa also has professional staff serving e-trading clients in Europe and the US. 

"The demand for electronic trading strategies has increased drastically in the last few years as more buy-side clients opt for the unbundling of research and execution to achieve better efficiency and lower transaction costs," said Punit Mittal, Daiwa Securities SMBC's global head of electronic trading.

Also last week, Credit Suisse announced that it would add algorithmic trading to its DMA service for Indonesian equities.

Daiwa's platform will execute trades in equities, derivatives, foreign exchange and swaps, and, from early next year, the bank hopes to provide access to new markets such as Indonesia, Malaysia and Thailand, said Tokyo-based Mittal. "The new platform will support a very dynamic crossing platform as well as an advanced, integrated suite of algorithms to maximise liquidity management which other brokers may not have," he added.

Daiwa's announcement comes just a few days after Ronald Arculli, chairman of Hong Kong Exchanges and Clearing, joined a growing chorus of critics of alternative trading platforms which source so-called "dark pools of liquidity", pointing to their relative opacity and fragmentation of liquidity.

Nevertheless, following the launch of Daiwa AlgoRithmic Trading earlier this year, the bank will roll out its "next generation crossing platform and SOR with the ability to sweep liquidity across all available execution venues in early 2010", said Mittal. 

"Helping clients enhance liquidity management is a key focus for Daiwa, given that 89% of total equity trading cost can be attributed to indirect costs such as market impact costs and opportunity costs due to information leakage," he explained.

Already, many new clients have started trading on the platform, he said, and have expressed "deep interest" on new products such as algos and crossing. "Given the huge market share of Daiwa, we are in a very good position to optimise on the liquidity and provide superior execution which is of great interest to the clients."

Daiwa will also launch a "low-latency DMA platform" (that is, sub-millisecond) using the co-location facility that will be provided by the Tokyo Stock Exchange (TSE) after Arrowhead, TSE's next generation trading system, goes live in January 2010. Fast DMA will mainly be used by high-frequency traders who trade actively through computer-generated arbitrage models.

Daiwa Securities SMBC, currently a 60-40 joint venture between Daiwa Securities Group and Sumitomo Mitsui Financial Group, will be renamed Daiwa Securities Capital Markets on January 1, 2010, when it becomes wholly owned by Daiwa Securities Group. It recently announced a plan to invest ¥100 billion ($1.12 billion) in its Asia ex-Japan operations and to increase headcount in the region by more than 400.

"Daiwa is committed to becoming a full-service investment bank in order to tap into the growing Asian markets. To that end, we are expanding across all divisions -- including investment banking, electronic trading, equity financing and derivatives -- to service global institutional clients", said Toshinao Matsushima, managing director and head of global markets.

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