For nearly 15 years, Trading Technologies has offered clients the ability to trade Australian derivatives. In fact the first market we connected to in the APAC region was the Sydney Futures Exchange (SFE), which has since merged with the Australian Stock Exchange to form the Australian Securities Exchange (ASX). Although ASX is based halfway around the world from our headquarters in Chicago, they’ve had a team of employees in Chicago for several years to better serve their international client base. We recently talked with Chicago-based Maurice Farhart, who serves as the exchange’s Head of International Sales, to learn about the latest developments at ASX and find out what the exchange has in store for the new fiscal year that began on July 1. You can learn more about the exchange by following them on Twitter at @ASX.
– Brian Mehta, CMO
How did you get into this industry? What led you to ASX, and what’s your role at the exchange?
Maurice: I actually joined the Sydney Futures Exchange (SFE) in 1999 as their Treasurer following a number of years in the banking industry. Over the years, I moved into a business development role initially focusing on new products and customer management. I then left the exchange and traded my own account for three years before returning to ASX to lead the International Business Development team.
For our readers who aren’t familiar with ASX, tell us a bit about the exchange.
Maurice: The ASX, the Australian Securities Exchange, is a merger of what formerly were two independent entities, the Sydney Futures Exchange and the Australian Stock Exchange. On the cash equities side we list almost 2,200 individual stocks and ETFs with options on about 80 of those names. On the futures side, which is probably most interesting to your customer base, our benchmark products are the fixed income curve and the equity index. The fixed income curve has contracts from 30 days out to 20 years. On the short end, the 30 day contract maps monetary policy as set by the RBA (Reserve Bank of Australia) and lists 18 calendar months. The 90 day bank bill complex lists 20 quarters which of course lends to a lot of spread trading. The three year contract is historically our most liquid contract while the 10 year contract is just behind it with a good percentage of volume in the U.S. day session. We also launched a 20 year contract which has the potential to be the beneficiary of some of the Government’s recent issuance of longer maturity paper. On the equity index side, the S&P/ASX 200 equity futures index has liquidity 22 hours a day, 20 ticks deep on the TT MD Trader® widget, with an average daily move of about 1%. Your readers can learn more about the derivatives listed on ASX here.
How is it different, and what’s the appeal to trading your market?
Maurice: Australia is a nation of 25 million people. Despite that relatively small size, Australians must provide for retirement and have roughly A$3 trillion in pension savings in what are called superannuation funds that need to be invested for retirement. At the same time, the Government runs a tight budget and does not have a requirement to issue a lot of Government debt. The net result of that math is that futures are used extensively by real money participants which tends to support a diverse set of market participants. A few things that people tend to notice right away when trading ASX futures:
- Our fixed income products trade on yield and not on price with pricing actual/365 resulting in ASX fixed income products having a variable tick value. Our Bond futures are cash settled at expiry and underpinned by a basket of bonds, rather than having a cheapest to deliver structure. Our Bank Bill futures are also cash settled at expiry, against three month BBSW. This is a recent change, whereas previously the contract was deliverable.
- At current yields and minimum bid/offer spreads, these products have a good sized DV01.
- Our market is all FIFO both in fixed income and index futures.
- We pride ourselves on providing an even playing field from an access perspective. Firms (such as TT have) can choose to co-locate in the ALC, our data center in Sydney, or connect via our PoPs in Chicago, London, Hong Kong or Singapore. All the cabling is equidistant and there are no participant tiers that get faster messaging.
China, which is Australia’s largest trading partner, is taking steps to open their markets to the rest of the world. What are your observations on what’s occurring there?
Maurice: Whilst we can’t speak for China’s plans, you are correct in that they are Australia’s largest trading partner. The net result of those changes, theoretically, is many more participants coming to trade global markets. As a regional neighbor with the connectivity options we previously highlighted, it certainly would be our hope these participants would find new trades and spreads whereby at least one leg is done on the ASX whether the 30 day interbank cash rate futures, the ASX 90 day bank bill futures, or 3 and 10 year treasury bond futures.
What’s on the horizon for ASX?
Maurice: There are several initiatives at ASX right now, a few that your customers might be interested in include:
- The pending launch of the 5 Year Treasury Bond future in late Q4 2020. The new contract will provide an additional liquidity point and hedging tool at the mid part of the curve allowing participants to manage their risk exposures in a more effective manner as well as providing additional spreading opportunities. Further details on the product specification and listing can be found here.
- The recent launch of ASX DataSphere. DataSphere is a data science platform that brings together a community of data providers, analytics experts and insight seekers. More information can be found here.
- Our replacement of CHESS (the Clearing House Electronic Subregister System) with a system based on distributed ledger technology. CHESS is the system that underpins the post-trade processes of Australia’s cash equity market. I don’t think it’s an understatement that the whole world is keeping a close eye on how ASX is bringing this cutting edge technology to the financial markets and we’re of course excited about our progress and the possibilities for additional applications.