Q7 AUTHORS Duncan Begg Director Head of Algo Product Management - Asia Pacific ITG Asia Pacific duncan.begg@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 Erin Stanton Managing Director Head of Analytical Products and Research ITG Asia Pacific erin.stanton@itg.com Clare Witts Director Head of Client Relationship Management ITG Asia Pacific clare.witts@itg.com CONTACT Asia Pacific Market Structure Chartbook HIGHLIGHTS HONG KONG S CAS VOLUME INCHES UP SINCE ITS INITIAL LAUNCH. PHASE II SCHEDULED FOR JULY. STOCK CONNECT IN THE SPOTLIGHT FOLLOWING THE CHINA A SHARE INCLUSION. VOLUMES START TO INCREASE ON THE BSE FOLLOWING LIQUIDITY PLAY. Expanding the Hong Kong Closing Auction Session (CAS) The second phase for the Hong Kong CAS planned by the HKEx is scheduled to begin July and will include an additional stocks from the Hang Seng Composite SmallCap index as well as short selling. Overall market feedback on the closing auction has been positive; the auction has attracted an average 6. of daily volume since inception, with rebalance days hitting highs between and %. Comparing Q7 closing auction volume to the initial launch period shows a marginal increase from.% to. of daily turnover. Volume in the last utes of the day has decreased from 7% pre-cas to 9% in the most recent quarter. Hong Kong Volume Profile - CAS % Asia Pacific +8.86. Canada +.6.87.9 EMEA +..767. % United States +..88. info@itg.com www.itg.com Source: ITG First trade days post CAS Q7
Q7 Fourth time s the charm The long-awaited inclusion of China A shares in the MSCI Emerging Markets Index became a reality June following three failed attempts. The initial weighting is relatively small, with China A share stocks making up.7% of the index. The inclusion is expected to attract $7 billion to $8 billion in foreign investments when it is phased in in May and August 8. The inclusion relies heavily upon the Hong Kong Stock Connect links, which will serve as a de facto capital control for foreign investors, given the daily limits on both northbound and southbound trading. Initial participation in Stock Connect was very light based on buy-side participation from ITG s Global Peer universe, but participation has continued to increase and now accounts for to % of China A share volume. Stock Connect Usage by the Buy Side % 9% 7% % % % % Q Q Q Q Q Q6 Q6 Q6 Q6 Q7 Stock Connect Non-Stock Connect Stock Connect has increased to nearly % in Q6. Buy Sides Using Stock Connect The number of buy sides using Stock Connect has continued to rise, reaching a peak of 8 clients in Q6. Q Q Q Q Q Q6 Q6 Q6 Q6 Q7 Global Peer database
Q7 Volumes start to increase on the BSE following liquidity play The Bombay Stock Exchange (BSE) revised its transaction charges in April to lure larger traders from the its main competitor, the National Stock Exchange of India (NSE). Prior to April, the BSE charged a flat rate based on gross turnover, but now the basis is monthly trade count. The per-trade charge decreases as the monthly trade count increases, rewarding those with larger turnover. A recent announcement sees a marginal increase in the transaction-count charge, though overall fees still remain below what the NSE charges. The BSE s percentage of total volume has started to increase over the past three months, reaching as of July. It s still too early to tell whether this trend will continue, but with the NSE market outage on July, coupled with the lower transaction charges, it is starting to look favorable for the BSE. BSE and NSE Volumes % 9% 7% % % % % Apr May Jun Jul BSE Volume NSE Volume Source: Bloomberg data
Q7 REGIONAL TRADING COST SUMMARY Expected impact costs remained flat in Japan, Australia, Hong Kong and Korea while the largest decreases observed in Malaysia, the Philippines and Thailand were being driven by improvements in historical volatility. Liquidity conditions improved in China, Korea, Taiwan, Thailand and the Philippines. Expected Impact Costs for a US$mm Market-Level Portfolio Q7 vs. Q7 8 9 6 6 7 7 9 7 6 9 7 67 68 Q7 Q7 Demand for Liquidity of a US$mm Market-Level Portfolio as of Q7 6. 89.7 %MDV 8 6 7..9...6.9 9.6..8 8.. Note: The average order size in New Zealand was very large and was removed from this chart for scale purposes.
Q7 POINTS OF INTEREST BY MARKET The quarter was marked by consistent intraday volatility and decreasing spreads across many of the markets in the region. Daily volumes remained elevated in Hong Kong, Taiwan and Malaysia. Developed AUSTRALIA (p7): Australia was one of two markets to see a decrease in intraday volatility in Q, and spreads reached a -month low at only.7. Market cap remained over the trillion mark for the second quarter in a row. HONG KONG (p8): Intraday volatility remained consistent with that in Q, and elevated volumes continued across the quarter. Spreads have shown a gradual decrease over the past nine months, ending the quarter at just over 6. JAPAN (p9): Spreads fell month-over-month in Q and averaged only. in June. Post-lunch break volatility decreased, while of volume continued to be executed in the last utes of the day. NEW ZEALAND (p): Intraday volumes in New Zealand continue to increase leading into the closing auction, with % of daily volume completing in the last hour of the day, including the auction. Spreads fell from highs seen in November 6, averaging.7 in Q7. SINGAPORE (p): Average market caps continued to increase in Q, averaging more than 9 million in June. Singapore continued to trade heavily into the close, with of turnover executing in the last utes of the day, including the auction. Semi-Developed KOREA (p): May and June average daily volumes reached a -month high, well surpassing the $8 billion mark. Spreads and volatility remained flat quarter-overquarter. TAIWAN (p): Q and Q volumes remained higher than 6 levels, and the open continued to doate the volume curve in Taiwan, with of total turnover executing in the first hour of the day, including the opening auction.
Q7 6 Emerging CHINA (p): Spreads have continued to fall in China, with June averages just over 7. Average daily volume for the quarter remained around the 6 billion mark for the second quarter in a row. INDIA (p): Intraday volatility stepped down from Q levels while market cap continued to steadily approach the $ trillion mark. INDONESIA (p6): The gradual decrease in spreads continued in Q, hitting below 6 for the first time in months. Intraday volatility remained higher leading into the closing auction. MALAYSIA (p7): Spreads also continued to decrease in Malaysia, nearing in June. Average daily volumes remained elevated over 6 levels. PHILIPPINES (p8): Average daily volumes spiked in June, with a surprising million in daily turnover, while spreads continued to decrease, falling under for the first time in months. THAILAND (p9): Q marked the slowest quarter over the past months, with average turnover reaching only. billion. Both spreads and volatility remained flat quarter-over-quarter in Thailand.
Q7 Developed Markets 7 AUSTRALIA Volume Profile Q7 Australia Intraday Volatility Q7 vs. Q7 Australia st quartile Q7 Q7 % % Market Cap-Weighted Spread by Month Australia 8 6 Typical Touch Size as a % of Daily Value Traded by Month Australia.%.%.% 8.%.%.%.% 6.%.%.%.% Average Daily Value Traded by Month Australia 6 Average Market Cap by Month Australia...
Q7 Developed Markets 8 HONG KONG Volume Profile Q7 Hong Kong % Intraday Volatility Q7 vs. Q7 Hong Kong 9% st quartile Q7 Q7 7% % % % % Market Cap-Weighted Spread by Month Hong Kong Typical Touch Size as a % of Daily Value Traded by Month Hong Kong.%.%.%.%.%.%.%.% Average Daily Value Traded by Month Hong Kong 9 Average Market Cap by Month Hong Kong. 8 7. 6...
Q7 Developed Markets 9 JAPAN Volume Profile Q7 Japan Intraday Volatility Q7 vs. Q7 Japan % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month Japan 7 Typical Touch Size as a % of Daily Value Traded by Month Japan. 6.7%..%..%..%.% Average Daily Value Traded by Month Japan Average Market Cap by Month Japan 7 6
Q7 Developed Markets NEW ZEALAND Volume Profile Q7 New Zealand Intraday Volatility Q7 vs. Q7 New Zealand % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month New Zealand 6 Typical Touch Size as a % of Daily Value Traded by Month New Zealand % % % % Average Daily Value Traded by Month New Zealand Average Market Cap by Month New Zealand Billions Millions USD USD 8 6 Trillions
Q7 Developed Markets SINGAPORE Volume Profile Q7 Singapore Intraday Volatility Q7 vs. Q7 Singapore % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month Singapore Typical Touch Size as a % of Daily Value Traded by Month Singapore % % Average Daily Value Traded by Month Singapore.9.8.7 Average Market Cap by Month Singapore.9.8.7.6...6........
Q7 Semi-Developed Markets KOREA Volume Profile Q7 Korea Intraday Volatility Q7 vs. Q7 Korea 6 % st quartile Q7 Q7 % 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 Average Market Cap by Month Korea.6 9 8 7.. 6.8.6..
Q7 Semi-Developed Markets TAIWAN Volume Profile Q7 Taiwan Intraday Volatility Q7 vs. Q7 Taiwan % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month Taiwan Typical Touch Size as a % of Daily Value Traded by Month Taiwan.%.%.%.%.%.%.%.% Average Daily Value Traded by Month Taiwan.. Average Market Cap by Month Taiwan....8.6....
Q7 Emerging Markets CHINA Volume Profile Q7 China Intraday Volatility Q7 vs. Q7 China st quartile Q7 Q7 % % Market Cap-Weighted Spread by Month China Typical Touch Size as a % of Daily Value Traded by Month China.%.% 8 6...%.%.%.% Average Daily Value Traded by Month China 9 8 7 6 Average Market Cap by Month China 7.6 7. 7. 7 6.8 6.6 6. 6. 6
Q7 Emerging Markets INDIA Volume Profile Q7 India Intraday Volatility Q7 vs. Q7 India 6 % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month India Typical Touch Size as a % of Daily Value Traded by Month India.......%.%...%.%.% Average Daily Value Traded by Month India 7 Average Market Cap by Month India. 6..
Q7 Emerging Markets 6 INDONESIA Volume Profile Q7 Indonesia Intraday Volatility Q7 vs. Q7 Indonesia 8 % st quartile 7 6 Q7 Q7 % Market Cap-Weighted Spread by Month Indonesia Typical Touch Size as a % of Daily Value Traded by Month Indonesia.%.%.%.%.%.%.% Average Daily Value Traded by Month Indonesia. Average Market Cap by Month Indonesia.................
Q7 Emerging Markets 7 MALAYSIA Volume Profile Q7 Malaysia Intraday Volatility Q7 vs. Q7 Malaysia % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month Malaysia Typical Touch Size as a % of Daily Value Traded by Month Malaysia.% 9.% 8.% 7.% 6.%.%.%.%.%.%.% Average Daily Value Traded by Month Malaysia.7 Average Market Cap by Month Malaysia..6.............
Q7 Emerging Markets 8 PHILIPPINES Volume Profile Q7 Philippines Intraday Volatility Q7 vs. Q7 Philippines 6 % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month Philippines Typical Touch Size as a % of Daily Value Traded by Month Philippines....%.....% Average Daily Value Traded by Month Philippines. Average Market Cap by Month Philippines...........
Q7 Emerging Markets 9 THAILAND Volume Profile Q7 Thailand Intraday Volatility Q7 vs. Q7 Thailand % st quartile Q7 Q7 % Market Cap-Weighted Spread by Month Thailand 6 Typical Touch Size as a % of Daily Value Traded by Month Thailand.%.% 8.% 6.%.%.%.% Average Daily Value Traded by Month Thailand.8 Average Market Cap by Month Thailand..6...8.8.6.6....
Q7 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 6-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 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 7 Investment Technology Group, Inc. All rights reserved. Not to be reproduced or retransmitted without permission. 77-8 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. 89 ( 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. 8-), 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.