I participated in a series of Fragmentation Forums in

Asia last week. Just like previous events in Tokyo the events in

Hong Kong and Singapore were very well attended showing that

interest in fragmentation is now very much a global phenomenon.

One of the key messages that seemed to come out was that offering

better execution doesn't have to be driven by a

regulatory mandate. Instead, the drivers shaping the

buy/sell-side relationship in Asia are going to be the ability to

give customers choice and the ability for different brokers to

gain competitive advantage through smart order routing.

The other key message is that fragmentation will proceed

at different rates, and in different ways, across different Asian

countries. So, it seems that the consensus was that Japan and

Australia look like being fertile grounds for alternative lit

venues whilst other Asian countries would probably be dominated

by dark pools. As in the US and Europe, however, there is still

confusion over the discretionary pools operated by brokers and

the non-discretionary pools operated by exchanges and other

alternative venues. The first is simply an automation of the

traditional 'upstairs' trading activity by

brokers trying to find the other side for a trade. In this

instance, the broker is operating on a discretionary basis and

the value of the relationship he has with his client will be

reflected in the overall matching process. Venue operated dark

pools are non-discretionary in that trades will execute as long

as the appropriate criteria are met regardless. The problem is

that technology (and regulators) are making them appear more and

more alike when, in fact, there are subtle but significant

differences between them.

The final message

was that good old chestnut, clearing. As we saw in Europe,

multiple clearing venues can make it harder rather than simpler

to trade across multiple venues. This is because if different

venues are associated with different clearing operations then the

smart workflow between them is harder to accommodate. On the

other hand, a lot of lessons have been learned in Europe on this

one and so it may not prove such an obstacle in the medium

term.

If you want to find out more about Asian

trading generally then I would recommend you visit title="www.asiaetrading.com"

href="http://www.asiaetrading.com">www.asiaetrading.com.

It's full of interesting information about how markets

are structured in Asia and how they are developing. Also, Steve

Edge, who runs the site, provides a useful and entertaining

commentary on events across Asia - well worth a

look.

Finally, back in Europe looking forward

to seeing what happens in Spain now that some of the structural

obstacles are being removed. Spain certainly has a lot of ground

to make up as the FFI for its main index, the IBEX 35, is barely

over 1 whilst the same figure for the other major European

countries has been well over 2 for a long while now.