Equity electronic trading revenues in Asia Pacific are set to see a 17% fall this year, with liquidity sinking during the downturn, according to research from Tabb Group.
Tabb predicts revenues will drop to $815 million, down 16.9% from $981 million in 2008. This follows a 17.7% decrease in institutional value traded from 2007 to 2008, a year-over-year drop that has affected overall trading strategies across Asia.
Tabb says the global downturn hit just as electronic trading was taking hold in the region, forcing many hedge funds to curtail electronic strategies or simply shutter operations.
Matt Simon, Tabb analyst and report author, says: "In the second half of 2008 there was a significant pullback leading into the first quarter of 2009. Traders saw liquidity sink."
The research also highlights the slow rate of dark pool trading adoption in the region. Dark pools are estimated to account for at least 10% of all equity trading in the US whilst the introduction of MiFID has spurred their growth in Europe.
They are far less popular in Asia although last month Goldman Sachs launched its Sigma-X dark pool equity trading system in Hong Kong, while CLSA, Instinet and Investment Technology Group also run platforms in the region.
Yet Tabb estimates that only 3.5% of value traded will be matched off-exchange in Japan by 2010, up from 1.2% in 2008. In Hong Kong, Korea, Australia, Singapore and Taiwan, there will be just 1.5% traded off-exchange, although this compares to a paltry 0.3% in 2008.
Other trends indentified by the report include continued global expansion, which is driving connectivity to new markets such as Malaysia, Thailand and Indonesia
In addition, buy-side firms have returned to volume-weighted average price (Vwap) and trade weighted average price (Twap) strategies amidst current volatile market conditions. Meanwhile demand for transaction cost analysis is increasing with 35% of buy-side firms using some type of independent TCA.