The rise of regional brokers in APAC presents challenges and opportunities

March 17, 2023

The ongoing process of economic development and integration in South-East Asia is having a major impact on local equities markets. In particular, broking firms are moving beyond their former focus on purely domestic business, and are beginning to operate across national borders. A new generation of regional super-brokers are establishing themselves as major players across APAC. As always however, growth and expansion present unique challenges. New technological solutions are required to support the increasingly sophisticated and interconnected markets across the region.

The changing regional environment

Several different factors contribute to the rise of regional brokers in APAC:

  • Major international players that might otherwise be capturing cross-border business have largely confined their operations to the traditional APAC core markets. Global banks and brokers rarely operate large trading offices outside of Hong Kong and Singapore.
  • Domestic markets are becoming more sophisticated. Economic development is stimulating demand for access to capital markets, and there are growing numbers of potential retail investors. Buy-side firms increasingly demand access to more markets and a wider range of products.
  • The region is becoming more economically integrated. Longstanding regional organisations like ASEAN and APEAC are increasingly being supplemented by wide-ranging trade agreements, like the Regional Comprehensive Economic Partnership (RCEP). Many of the barriers to cross-border investment are gradually being lowered.
  • Firms that depend on a single domestic market are more vulnerable to the impact of regulation (such as Thailand’s forthcoming financial transaction tax). Developing access to a wider range of markets and instruments allows brokers to mitigate this risk, and offer a more attractive service to their domestic customers.

Challenges for regional brokers

Regional expansion clearly offers new opportunities. But the process also presents operational and technological challenges. Brokers moving into new markets and sectors often find that their existing systems and processes are not sufficient.

When an Asian firm begins to operate across national borders, they become subject to multiple different regulatory regimes. Unlike in Europe and North America, there is no single dominant regulator across the APAC region. Market participants need be aware of new regulations, and exchange-mandatory changes in every market in which they operate. They also need to understand how these changes will affect their business.

Multiple different currencies are in use across APAC, meaning that regional brokers are inevitably exposed to FX risks. Firms need to have the tools necessary to understand and manage this exposure.

Regional expansion also presents technological challenges. Legacy trading systems may not support working across multiple markets and using separate tools for each market is not an effective long-term solution:

  • Traders are forced to ‘screen switch’, reducing individual efficiency and making it harder to identify cross-market opportunities.
  • Leadership cannot take a holistic view of their business, and struggle to develop a complete understanding of risks and opportunities.
  • Regional brokers cannot offer a consistent service to buy-side clients across multiple markets – nullifying one of the key ways in which they can add value compared to domestic firms.
  • Maintaining separate platforms for each market adds to operational costs – especially if these are enterprise (on-premises) systems that need to be managed by internal IT staff.

What role can vendors play?

Any growing regional broker is likely to have an extensive ‘wish list’ of features that potential vendors and service providers need to fulfill:

  • Access to multiple markets across the region within a single platform.
  • Advanced tools and algorithmic workflows that allow brokers to meet the increasingly sophisticated requirements of the buy-side.
  • An integrated platform that delivers risk management, middle-office tools, and back-office processing.
  • An in-depth understanding of the APAC regulatory environment.
  • Agile and flexible processes allowing new solutions to be quickly deployed and extended when necessary.
  • The ability to respond quickly to ad hoc and abrupt functional changes and technological upgrades announced by stock exchanges.
  • Hosted or cloud-based solutions that remove the twin burdens of maintaining expensive infrastructure and retaining hard-to-find IT expertise in-house.

In many ways, large international fintech vendors are ideally placed to meet these requirements. Their track record of supporting the global operations of major financial institutions means they have extensive experience of delivering integrated, multi-market platforms. They have the infrastructure and expertise necessary to quickly roll out hosted solutions. Many vendors are also well established in core APAC markets, and are used to working with local exchanges and brokers to deliver technical, business, and regulatory requirements.

Vendors cannot be complacent however. Fintech firms must take the time to understand the unique environment in which APAC regional brokers operate. ‘Off-the-shelf’ solutions, designed for Europe or North America, will inevitably fail to address the particular requirements of these emerging markets. The challenge for vendors is to build trust and mutual understanding across the new regional sell-side. Such relationships will help to establish the technological foundations for success at a regional level, and will set the stage for further global expansion. The new generation of Asian brokers are poised to follow Chinese firms into Europe and North America, and vendors must rise to the challenge of supporting them.

ION Markets

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