European Trading Firms Eye APAC Derivatives Markets: Survey

European proprietary trading firms and hedge funds are the latest group to apparently be eyeing Asia-Pacific markets for their next growth opportunity, according to a new survey.

The survey, conducted by Acuiti with Trading Technologies, surveyed 53 executives at prop trading and hedge fund firms, also found, however, that there are unique challenges to markets in that region that must be overcome.

Of those surveyed, 59% were already trading derivatives on markets in APAC with a further 11% set to start doing so – Acuiti says 37% of respondents who traded on markets in APAC said that trading in the region was more profitable than on markets in Europe, a view particularly pronounced among hedge funds.

As far as the challenges are concerned, the primary obstacle appears to be finding the right local partners and understanding local rules. Another major challenge for prop firms was gaining access to regional derivatives markets via their preferred clearing firm.

Technology requirements were lower down the list of challenges. Over the past decade, third-party front office vendors have made substantial investments in expanding connectivity to exchanges in APAC, significantly reducing the cost of entry for their clients when it comes to engaging new markets.

The survey also found, unsurprisingly perhaps, that Japan is the most commonly traded market in the region, followed by Australia and Hong Kong and that Singapore was the easiest market to connect to and China the hardest. Firms trading Indian onshore markets reported the highest profitability from trading in APAC, and equity futures are seen as the asset class with the most potential in APAC over the next three years.

“APAC is the fastest growing region for listed derivatives trading volumes, and that is fuelling interest in trading in the region among European proprietary trading firms and hedge funds,” says Will Mitting, founder and managing director at Acuiti. “At the same time, many exchanges have invested in technology and processes designed to make it easier for international trading firms to connect and trade. This is creating a virtuous circle of growth that is set to continue.”