December 11th, 2018 - Financial, Global Connectivity
Ricky deBritto, TNS’ Country Manager for Japan, answers questions on Japanese foreign exchange (FX) market conditions and the challenges present when accessing the dynamic Asian markets.
Japan’s FX markets are welcoming a growing number of overseas traders, what is driving this expansion?
New solutions, such as the TNS Managed Hosting, Co-Location and Connectivity Service, are making it easier and more cost-effective to test and enter new markets, like Japan, without significant capital outlay. A major advantage is our alignment with Japan’s distinctive trading environment. TNS’ network is supported by multiple points-of-presence in Japan, each carefully chosen for its unique trading ecosystem; what’s more we have both sales and operational personnel in country.
We are seeing significant FX market growth at the TY3 data center, where we can establish low-latency connections to a large number of FX electronic communications networks, such as Reuters, EBS and LMAX; and the major banks have launched their FX platforms at TY3.
Traditional FX trading infrastructures are now being augmented with new technologies, like cloud and we’ve seen growing levels of interest in Japan in our new TNS Cloud Connect solution as a result. This facility allows trading firms to access the cloud from their networks under the same secure, robust and low-latency conditions which they expect from their connectivity provider.
Recent rumours suggest that Japan’s Financial Services Agency may be scrapping a plan to cut the maximum leverage that currency trading platform operators can offer to investors, do you think this move will benefit or hinder the market?
By making this move the FSA intended to protect against fears that aggressive risk-taking by some could cause big losses for both traders and platforms if investors did not have enough cash to deal with margin calls. Margin currency trading is very popular in Japan and is a key driver of growth so the fierce market objections to this were understandable.
At TNS we have many customers that are capitalising on our fast, resilient and secure connectivity solutions. It will be interesting to observe whether the stress tests that have been proposed as an alternative will help to mitigate any settlement risks related to FX margin trading. This is one of those situations where trust among traders is tested and the purest relationships will be the ones which succeed to the benefit of all parties.
Liquidity is a key issue for FX traders and can significantly affect market performance. Japan and other Asian markets appear to be exceling over their EU and US counterparts. Why do you think this is?
FX liquidity is performing better in Asia than the EU and US, and this is not just due to a more accommodating regulatory and tax environment for business and trading, but a number of other local and global factors too.
In Japan we have long established conglomerates, such as Toyota and Sony for example, who have enormous FX trading requirements. Historically Japan has served these well, creating a sizable retail FX margin business in the process and becoming accomplished at catering to what the local community calls ‘Mrs Watanabe’. By servicing this segment, Japan’s retail FX margin brokers have been able to secure and maintain a significant foothold servicing retail clients in other Asia Pacific countries too.
We are also operating in a time of geopolitical uncertainty with events such as Brexit and US political turmoil acting as stimuli for banks to explore re-headquartering their organisations or moving substantial parts of their operations to the Asia Pacific region. These activities are serving to boost liquidity in our region even further.
As our business grows, achieving the lowest latency connections to a growing number of global FX venues is a significant challenge. What would be the best strategy to deploy as we move forward?
This is an issue being faced by many around the world. At TNS, we’re seeing increased demand for direct access to multiple trading venues and have developed the TNS Managed Hosting, Co-Location and Connectivity Service to meet these requirements.
This service can be deployed in any location where TNS has a point-of-presence, and so far it’s live in Sydney, New York, Chicago and Frankfurt, with other sites in Asia and Europe due to come online shortly.
Firms that trade FX often need cross connects to dozens, if not hundreds, of individual counterparties in order to access liquidity. Procuring and managing this network of countless cross connects is an expensive and complex burden that takes firms away from their core business objectives. This is where TNS steps in. We can take over management of these cross connects, which reduces our clients’ operating expenses and the related complexity, allowing them to focus on making money.
We’re proud of our reputation in the Japanese financial market. Our clients trust our reliable and stable network, which is backed up by superior service level agreements and includes 24x7x365 customer support.