Asia Pacific Market Structure Chartbook

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1 Q8 AUTHORS Niamh Golden Director Head of Analytical Products - Asia Pacific ITG Asia Pacific niamh.golden@itg.com Heath Mooney Director Senior Sales Trader ITG Asia Pacific heath.mooney@itg.com Bobby So Vice President Product Manager Algorithms ITG Asia Pacific bobby.so@itg.com Clare Witts Director Head of Client Relationship Management ITG Asia Pacific clare.witts@itg.com CONTACT Asia Pacific Market Structure Chartbook HIGHLIGHTS CHINA FOCUS CHINA TRADING BY INTERNATIONAL INVESTORS: WHO, HOW AND WHAT DOES IT COST? ITG s Global Peer transaction cost database includes more than non-chinese institutional asset managers, 7 of which traded China stocks in the past five years. We analyzed over US$bn in China orders this group traded to build an aggregate picture of activity levels and usage by international investors of Northbound Stock Connect versus direct trading on the China exchanges. Who trades? How Stock Connect has changed which international firms trade China. Number of Institutions Trading China 7 7 Steady increase in number of international institutions regularly trading China equities Asia Pacific Canada EMEA United States info@itg.com Traded China before Stock Connect Did not trade China before Stock Connect 3% of the institutions trading via Stock Connect in 7 were new to China trading; i.e., before Stock Connect, they did not trade China stocks at all. All institutions that were already trading Chinese stocks in 3 have become Stock Connect users since it was launched in November. 3% of international institutions in the analysis trade only via Stock Connect.

2 Q8 How has Stock Connect use changed since launch? Stock Connect Use % 9% 7% % Stock Connect now regularly forms about % of the overall China trading done by international institutions % 3% % % % 3Q 3Q 3Q3 3Q Q Q Q3 Q Q Q Q3 Q Q Q Q3 Q 7Q 7Q 7Q3 7Q 8Q China ex Stock Connect Stock Connect Trading Volume by Year Sum of traded value (billions) 3 7 China ex Stock Connect Stock Connect AGG (volatility calculation) 3 3 AGG (Volatility Calculation) In a particularly volatile trading period for China stocks value traded was over $bn direct, and only $bn in Stock Connect. In 7, although overall value traded was slightly lower at $8bn, levels of trading on Stock Connect versus non Stock Connect was significantly higher versus both and at $9bn.

3 Q8 3 What does it cost to trade China? Brokerage commission rates have trended down for both direct China trading and Stock Connect since Average Commission Costs by Year 7 China ex Stock Connect Stock Connect Distribution of Traded Value by Order Size % % of total traded value 9% 7% % % 3% The majority of orders traded through both channels are under % ADV, though we see more international investors using Stock Connect for the %+ ADV orders than going direct. % % % <% %-% >% China ex Stock Connect Stock Connect Transaction Costs (IS ) by Order Size I.S. () 8 8 On average, trading orders less than % ADV via Stock Connect incurred lower IS trading costs than trading direct. However, for larger order sizes Stock Connect became almost twice as expensive. <% %-% >% China ex Stock Connect Stock Connect

4 Q8 REGIONAL TRADING COST SUMMARY The expected impact of a US$ million market-level portfolio rose in most markets in Q 8, reflecting increased volatility, particularly toward the end of the quarter. Expected Impact Costs for a US$mm Market-Level Portfolio Q7 vs. Q Q 7 Q 8 Demand for Liquidity of a US$mm Market-Level Portfolio as of Q8 8.7 %MDV Note: The average order size in New Zealand was very large and was removed from this chart for scale purposes.

5 Q8 POINTS OF INTEREST BY MARKET Volatility doated Q market trends, contributing to higher expected trading costs. In Japan and Taiwan, intraday volatility was signficantly higher in February than in other months of the quarter, whereas for Hong Kong and Australia the intraday volatility was significantly higher in March. Indonesia continues to grow to new highs in terms of average daily value traded and market cap. Developed AUSTRALIA (p7): Spreads were stable around throughout the quarter. Average market cap continued the high levels from the end of 7, averaging approximately US$.3 trillion. Intraday volatility was higher in Q8 than Q7, driven by a surge in March. HONG KONG (p8): Strong volumes traded throughout Q, with a peak in January, contributed to ongoing growth of market cap. Higher quarterly intraday volatility was driven up by March activity and spreads trended down through the quarter, reaching an annual low of pbs in March. JAPAN (p9): Spreads widened and typical touch size fell through the quarter. Intraday volatility peaked in February, accompanied by a spike in trading volumes taking them to the highest levels seen in the past months. NEW ZEALAND (p): Spreads rose this quarter and daily value traded continued at lower levels to Q activity, averaging about US$ million compared with the November highs of ~US$ million although market cap remained stable. SINGAPORE (p): Intraday volatility was materially higher in Q8 versus the previous quarter, and consistently higher through the quarter, although March showed more volatility, particularly during the afternoon session. Spreads trended up while typical touch size fell further and remained low compared with Q7. February saw higher average daily value traded than in the previous two years. Emerging CHINA (p): China s market cap continued to rise to almost US$9 trillion, with high average daily value traded in January. Expect to see ongoing increases in volumes going into MSCI inclusion of China at the end of May. Spreads continued to fall as typical touch size also reduced. Intraday volatility peaked in February, driving an overall quarter-on-quarter increase. INDIA (p3): Spreads continued in a similar range to the previous quarter, significantly lower than earlier periods. Intraday volatility was higher this quarter and displayed a far choppier profile than in the previous quarter; March volatility was far higher around the Close than in previous months.

6 Q8 INDONESIA (p): Average daily value traded in Indonesian stocks rose this quarter to over US$. billion, the highest levels in at least the past three years, driving ongoing growth in market cap. Other metrics remained stable. KOREA (p): Korea was one of the few APAC markets exhibiting lower intraday volatility quarter on quarter, with stable spreads and low typical touch size. High average daily value traded in January helped to support a steadily increasing market cap and keep its overall quarterly volumes slightly higher than that of Hong Kong for a second quarter in a row. MALAYSIA (p): High average daily value traded, particularly in January, combined with stable spread and volatility metrics, contributed to Malaysia s status as the only market this quarter where expected trading costs fell. PAKISTAN (p7): January values traded increased on the previous quarter and then leveled off. Market cap was stable and at higher levels than Q7. Spread profiles continue to be erratic, reflecting the liquidity profile of the market, though intraday volatility was down quarter on quarter. [Notes: Pakistan operates different trading hours on Friday compared to Monday through Thursday; therefore, the volume profile and intraday volatility charts are based on Monday-Thursday data. The Open auction volume is also a proxy based on the pre-open matching data.] PHILIPPINES (p8): Average daily value traded stabilized following the Q drops as market cap rose through Q8. Spreads moved within a range of -3 as typical touch size continued to fall through the quarter. TAIWAN (p9): All metrics were relatively stable for Taiwan throughout the quarter, with strong months for daily value traded in January and February. Intraday volatility was in line with the previous quarter, except for in the Close, when it rose significantly. This was a particular trend for February trading. THAILAND (p): Trading volumes continued to rise in Q with a peak in January of more than US$. billion per day and growth in market cap. Spreads generally trended down, moving below in January and February, while typical touch size remained comparitively low through the quarter.

7 Q8 Developed Markets 7 AUSTRALIA Volume Profile Q8 Australia Intraday Volatility Q7 vs. Q8 Australia % st quartile 3 3 Q7 Q8 % % % % % % Market Cap-Weighted Spread by Month Australia Typical Touch Size as a % of Daily Value Traded by Month Australia.% 8.%.% 3.% 3.%.%.%.%.%.%.% Average Daily Value Traded by Month Australia Average Market Cap by Month Australia. 3..

8 Q8 Developed Markets 8 HONG KONG Volume Profile Q8 Hong Kong Intraday Volatility Q7 vs. Q8 Hong Kong % % st quartile 7 Q7 Q8 % 3 % % Market Cap-Weighted Spread by Month Hong Kong Typical Touch Size as a % of Daily Value Traded by Month Hong Kong 3.% 8.% 8.%.%.%.%.% Average Daily Value Traded by Month Hong Kong Average Market Cap by Month Hong Kong 8 3

9 Q8 Developed Markets 9 JAPAN Volume Profile Q8 Japan Intraday Volatility Q7 vs. Q8 Japan % % st quartile 3 Q7 Q8 % 3 % % Market Cap-Weighted Spread by Month Japan Typical Touch Size as a % of Daily Value Traded by Month Japan.7%. 3.%.%.3%.%.%.% Average Daily Value Traded by Month Japan Average Market Cap by Month Japan

10 Q8 Developed Markets NEW ZEALAND Volume Profile Q8 New Zealand Intraday Volatility Q7 vs. Q8 New Zealand 7% st quartile 3 Q7 Q8 % % 3% 3 % % % Market Cap-Weighted Spread by Month New Zealand Typical Touch Size as a % of Daily Value Traded by Month New Zealand % % 3 3 % % % % Average Daily Value Traded by Month New Zealand 8 Average Market Cap by Month New Zealand 3 USD millions billions 8 billions 3

11 Q8 Developed Markets SINGAPORE Volume Profile Q8 Singapore % % st quartile Intraday Volatility Q7 vs. Q8 Singapore 3 Q7 Q8 % 3 % % Market Cap-Weighted Spread by Month Singapore Typical Touch Size as a % of Daily Value Traded by Month Singapore 3% 3% 3 3 % % % % % % Average Daily Value Traded by Month Singapore. Average Market Cap by Month Singapore

12 Q8 Emerging Markets CHINA Volume Profile Q8 China Intraday Volatility Q7 vs. Q8 China 7 % st quartile Q7 Q8 % % 3 % % % Market Cap-Weighted Spread by Month China Typical Touch Size as a % of Daily Value Traded by Month China.3%.3% 8.%.%.%.%.%.% Average Daily Value Traded by Month China 9 Average Market Cap by Month China

13 Q8 Emerging Markets 3 INDIA Volume Profile Q8 India Intraday Volatility Q7 vs. Q8 India % % st quartile Q7 Q8 % 3 3 % % Market Cap-Weighted Spread by Month India. Typical Touch Size as a % of Daily Value Traded by Month India.% 3..% 3..%.%..%..% Average Daily Value Traded by Month India 7 Average Market Cap by Month India. 3..

14 Q8 Emerging Markets INDONESIA Volume Profile Q8 Indonesia Intraday Volatility Q7 vs. Q8 Indonesia % 9% st quartile Q7 Q8 7% % % 3% 3 % % % Market Cap-Weighted Spread by Month Indonesia 3 Typical Touch Size as a % of Daily Value Traded by Month Indonesia 3.% 3.%.%.%.%.%.% Average Daily Value Traded by Month Indonesia. Average Market Cap by Month Indonesia

15 Q8 Emerging Markets KOREA Volume Profile Q8 Korea Intraday Volatility Q7 vs. Q8 Korea % % st quartile 8 7 Q7 Q8 % 3 % % Market Cap-Weighted Spread by Month Korea Typical Touch Size as a % of Daily Value Traded by Month Korea..%.%.%...%.%.% Average Daily Value Traded by Month Korea 8 Average Market Cap by Month Korea

16 Q8 Emerging Markets MALAYSIA Volume Profile Q8 Malaysia % % st quartile Intraday Volatility Q7 vs. Q8 Malaysia Q7 Q8 % 3 3 % % Market Cap-Weighted Spread by Month Malaysia 3 Typical Touch Size as a % of Daily Value Traded by Month Malaysia.% 9.% 8.% 7.%.%.%.% 3.%.%.%.% Average Daily Value Traded by Month Malaysia.9 Average Market Cap by Month Malaysia

17 Q8 Emerging Markets 7 PAKISTAN Volume Profile Q8 Pakistan % Intraday Volatility Q7 vs. Q8 Pakistan 9 % st quartile 8 7 Q7 Q8 % 3 % % Market Cap-Weighted Spread by Month Pakistan Typical Touch Size as a % of Daily Value Traded by Month Pakistan. 3.% 3.%.3%.%.%.% Average Daily Value Traded by Month Pakistan 8 Average Market Cap by Month Pakistan Millions USD 8 USD Billions trillions USD 3

18 Q8 Emerging Markets 8 PHILIPPINES Volume Profile Q8 Philippines % Intraday Volatility Q7 vs. Q8 Philippines 7 % st quartile Q7 Q8 % 3 % % % Market Cap-Weighted Spread by Month Philippines 8 Typical Touch Size as a % of Daily Value Traded by Month Philippines..%.% 8.%...%.%.% Average Daily Value Traded by Month Philippines. Average Market Cap by Month Philippines

19 Q8 Emerging Markets 9 TAIWAN Volume Profile Q8 Taiwan Intraday Volatility Q7 vs. Q8 Taiwan % % st quartile 8 7 Q7 Q8 % 3 % % % Market Cap-Weighted Spread by Month Taiwan 3 Typical Touch Size as a % of Daily Value Traded by Month Taiwan 3.% 3.%.%.%.%.%.%.% Average Daily Value Traded by Month Taiwan 7 Average Market Cap by Month Taiwan

20 Q8 Emerging Markets THAILAND Volume Profile Q8 Thailand % Intraday Volatility Q7 vs. Q8 Thailand % st quartile Q7 Q8 % 3 3 % % Market Cap-Weighted Spread by Month Thailand 8 Typical Touch Size as a % of Daily Value Traded by Month Thailand.%.% 8.%.% 38 3.%.% 3.% Average Daily Value Traded by Month Thailand. Average Market Cap by Month Thailand

21 Q8 GLOSSARY Expected costs for a US$mm market level portfolio Calculated using ITG s Agency Cost Estimator (ACE) model to estimate the market impact of investing a US$ million portfolio in the index of the different countries.* ACE is a pretrade cost model that estimates transaction costs using a historical framework and is most often used within TCA as a sophisticated measure of order difficulty that accounts for more than just liquidity. The model uses order-specific details, including order size and trading strategy, as well as stock-specific market data specifically -day daily volume, five-day time-weighted spread, and -day historical volatility and makes an important assumption of market neutrality. Demand for liquidity of a US$mm market-level portfolio ITG uses a -day daily volume to calculate the demand of liquidity for any given order size. Volume profile Median average of value traded in the index during the quarter, per -ute time bin. Intraday volatility Quarterly market cap-weighted calculation of change in total value of the index, per -ute time bin. Market cap-weighted spread Market cap-weighted bid-ask spread of the index. Shows range of mean, and levels. Typical touch size as a % of daily value traded Total bid and ask size as percentage of daily volume of all stocks in the market, turnover weighted. Average daily value traded Quarterly mean average daily value traded in the market. Average market cap Mean quarterly average market capitalization (calculated based on close price). * COUNTRY INDICES USED FOR ANALYSIS: AUS ASX KOR KOSPI CHN Shanghai Shenzhen CSI 3 MYS Kuala Lumpur Composite Index HKG HSCI NZL NZX Index Gross IDN Jakarta LQ PHI PSEi Index IND NIFTY SGP Straits Times JPN TOPIX THA Thailand SET Index 8 Investment Technology Group, Inc. All rights reserved. Not to be reproduced or retransmitted without permission Global Peer is a trademark of the Investment Technology Group, Inc. companies. These materials are for informational purposes only, and are not intended to be used for trading or investment purposes or as an offer to sell or the solicitation of an offer to buy any security or financial product. The information contained herein has been taken from trade and statistical services and other sources we deem reliable but we do not represent that such information is accurate or complete and it should not be relied upon as such. No guarantee or warranty is made as to the reasonableness of the assumptions or the accuracy of the models or market data used by ITG or the actual results that may be achieved. These materials do not provide any form of advice (investment, tax or legal). ITG Inc. is not a registered investment adviser and does not provide investment advice or recommendations to buy or sell securities, to hire any investment adviser or to pursue any investment or trading strategy. All trademarks, service marks, and trade names not owned by ITG are the property of their respective owners. The positions taken in this document reflect the judgment of the individual author(s) and are not necessarily those of ITG. Broker-dealer products and services are offered by: in the U.S., ITG Inc., member FINRA, SIPC; in Canada, ITG Canada Corp., member Canadian Investor Protection Fund ( CIPF ) and Investment Industry Regulatory Organization of Canada ( IIROC ); in Europe, Investment Technology Group Limited, registered in Ireland No. 839 ( ITGL ) (the registered office of ITGL is Block A, Georges Quay, Dublin, Ireland). ITGL is authorized and regulated by the Central Bank of Ireland; in Asia, ITG Hong Kong Limited (SFC License No. AHD8), ITG Singapore Pte Limited (CMS License No. 38-), and ITG Australia Limited (AFS License No. 98). All of the above entities are subsidiaries of Investment Technology Group, Inc. MATCHNow is a product offering of TriAct Canada Marketplace LP ( TriAct ), member CIPF and IIROC. TriAct is a wholly owned subsidiary of ITG Canada Corp.