Challenges Facing DMA Support in Asia

The Case for China

I’m not bullish on China, neither as a place to do business nor as a place to invest. China has for over two Beach House Blackhead decades been “the next big thing,” and even though there have been minor gains I have always maintained that the society is not built on a foundation of trust which we tend to take for granted in the West. I believe her long-term prospects are not bad, albeit extremely over-valued at the moment.

This morning two articles landed in my Inbox from two very different sources. The first is your standard “I’m Bullish on China” article, from Finance Asia blog:,hong-kong-really-is-the-worlds-freest-economy.aspx

The Heritage Foundation once again ranked Hong Kong as the world’s freest economy this year, and in our web poll last week readers agreed with that assessment.

For the 17th year in a row, Hong Kong topped the class thanks to its small government, low taxes and light regulation. Barriers to entry are low, property rights are secure and contracts are respected. In short, the conservative think-tank reckons Hong Kong is a Tea Party paradise. On paper, at least.

The article makes it clear that Hong Kong is not China per se, but the sentiment is there. The race to open the financial floodgates between the two economies has peaked over the last two years, and for most foreign investors getting exposure to Hong Kong equals getting exposure to the mainland economy.

Now, Blind Freddy can see that the existence of trust in Hong Kong (a British colony until recently) does not equate to the existence of trust in mainland China. But what if there was a different way of looking at this problem of trust? Maybe the fact that China is doing things completely different to the US is a strong point?

Dilbert artist Scott Adams gives us this perspective:

China’s system, as I have written before, reminds me more of a corporate structure, or a meritocracy. In a corporation, you’re generally free to disagree with higher ups if you do it with data, and in a professional manner. Usually you need to go through proper channels, but dissent is generally allowed, and sometimes actively encouraged. If you’re a jerk about your disagreement with your superiors, or you don’t have persuasive data to back up position, you could get fired. But that’s a stupidity issue, not a freedom issue.

China’s leadership is packed with engineers and lawyers by training. I imagine that like any corporation, they appreciate the value of information when presented in a professional manner, and through proper channels. Unlike elected politicians, managers in a meritocracy are free to change position as new or better data emerges. The advantage of having only one political party is that everyone is on the same team. And if effectiveness is the goal, which apparently it is in China, I assume that new data is generally welcome.

Wild assumptions aside, Adams does have a point, and perhaps the best argument I have seen so far in favor of the Chinese System ™.

While Freedom of Speech is important on an individual and human rights level, it would have to be one of the most destructive forces around when it comes to actually getting things done. China may have the right idea, somewhat akin to Japan’s kaizen of the 1970s and 80s (which led to improvements in the toilet seat that still blow my mind to this day).

Adams’ readers are knee-jerk-quick to point out the flaws in his argument, but, at the risk of coming off pro-China, I think what he says definitely has merit. As I mentioned, one of the greatest periods of innovation (well, improving on things they copied from the West) in Japan came about under similar conditions as in China today.

But for long-term prospects, I’m still shorting China. Anyone who has spent time in the mainland has no doubt experienced first-hand the fact that Chinese are all out for themselves, short-term profits over long-term sustainability. This is deeply ingrained in their culture, and isn’t going to change any time soon.


Review – Kader Vali’s Blog

Not specific to Asian markets, but an excellent resource nonetheless, Kader Vali’s Practical topics for IT Professionals of Capital Markets blog is possibly the best technical-focused site I have found.

While a lot of the information is not specific to electronic trading in particular, and for client-facing support professionals the information can be a little technical at times, there are a number of fantastic primers and videos, including:

It seems that Kader hasn’t been posting so often lately, down to about once every month or so, but I’m still subscribed to him in my RSS reader. Furthermore, information he has already posted is a well-written, comprehensive resource to which I keep coming back.

The Information Horder

This recent comic from one of my favorite webcomics, xkcd, reminded me of one of the often-present members of a support team: the Information Horder.

Read the rest of this entry »

A while back I was asked the question “what do you see in the short-to-medium term so far as algos in Asia are concerned?” While Asia with its quirks and idiosyncrasies has meant that the standard set of algorithms (VWAP, TWAP, participation, plus an aggressive (ie will actively cross the spread) and a passive offering) have had to be all but re-coded for the various Asian markets, I felt that the average algorithm user (in many cases brokers trading on behalf of clients) would demand a rationalization of the algos available. At the time the company I was working for had just developed a fancy new algo and were having all the usual troubles that come with deploying it in Asia without any testing whatsoever. Other companies were promoting the fact that they offered over 150 different algorithms across several dozen brokers.

My prediction was based on the 80-20 rule (and let’s face it, the lion’s share of the volume from funds trading Asia via algorithms do so via VWAP), and has been somewhat correct, with one major broker that I know of decommissioning two algorithms, probably due to the cost-ineffectiveness of maintaining rarely-used algorithms in the region. However today I see on Asia Etrading that the march continues, with Instinet adding one more algorithm to their suite.

This news reminded me of some of the challenges of supporting algorithms in Asia which I have noticed over the last few years.

Local Development Team
For starters, you need to have a team locally who knows the intricacies of the various Asian markets, and is available for support during Asian hours. No longer is it acceptable to raise issues to the US support team, and get back to the client the next day. If you’re not prepared to commit to a local development team then you’re probably not going to be taken seriously by clients.

One unavoidable consequence of this is that upgrades branch entirely from their US/Europe upgrade path. And when you are already thin on resources in the area you can find you have an ever-increasing gap between client demands and the implemented reality. Especially for clients trading Asian markets from the US or Europe, all they want is for their algorithms to function the same, seamlessly across regions. If you’re involved in the support of these clients be prepared to explain to the folks in Sales and to the client directly. I recommend a proactive approach, but I understand that this isn’t always feasible.

A Few Good Men
Related to the above point, sourcing support staff can also be an issue. You can’t just fly someone over from the US, unfamiliar with local markets, in order to oversee a server-side upgrade of an algo. This also affects emergency replacement of staff when people leave – for other roles you can often easily just substitute someone in from another region temporarily to cover until a replacement is found (expect a post from me talking about this in more detail shortly).

Infrastructure in Every Region
As algorithms tend to be implemented as a separate service running on a server, it is possible to co-locate just the algorithm server in certain cases. Ironically the firms that can support this infrastructure best are large, established operators, whereas it is the smaller firms that could really benefit from being able to separate the infrastructure. For comparison, the “smaller” firm I worked at previously chose to have the majority of the infrastructure in Hong Kong. TSE-bound orders were sent out from Hong Kong “post-processing” to a broker in Japan. Needless to say, latency was a significant issue.

All-in-all the issues for supporting algorithms in Asia are similar to the issues for supporting other electronic trading support functions. However I find that the issues tend to be more pronounced, and the severity of mistakes can be much higher. I guess on the flip side, for those companies who are prepared to commit to providing and supporting algorithms properly, localizing and fine-tuning them as appropriate, it can definitely give the impression that the company has a strong commitment to the region.

Review – “Floored”

I was fortunate enough to see a screening of the movie “Floored” earlier this month (I have included the trailer at the end of this post). It’s a documentary put together by former Chicago floor traders, about Chicago floor traders, in particular how the introduction of electronic trading has changed the entire industry.

Director James Allen Smith skillfully avoids taking a stance in the series of interviews. As a former floor trader himself, he wants to make sure that the documentary captures the dizzying highs and painful lows of The Pit as it were, and make sure that its legacy lives on.

The Documentary Itself
I have no real complaints with the documentary itself, except to say that it felt a little formulaic at times. The music, the interviews, the flow and the scenes were very skillfully put together, without a doubt.

For someone like me who only knows electronic trading it was definitely interesting to see how it used to be done, with real footage, and get an insight into the lives of the floor traders themselves. As someone of the IT Age, seeing the former tough-guy floor traders losing out to the geeky programmers and quants is quite satisfying, yet somewhat embarrassing.

To put this film in the same category as Wall Street or Boiler Room might be a bit of a stretch, but definitely among people in the industry, including those who work with traders today, this documentary is a must see. If for nothing else then the interview with a very drunk Greg Riba, a former Chicago floor trader who apparently left during the 90s under somewhat mysterious circumstances (and he makes it very clear that he doesn’t want to talk about it in the documentary).

These Poor Chaps?
As I mentioned, a large focus of the documentary is about the introduction of electronic trading in 1997, and its effect on the individuals who used to be responsible for providing liquidity in the market (while skimming some cream off the top for themselves).

It was interesting to listen to the heart-wrenching stories of some of the former floor traders. One guy lost everything due to the introduction of electronic trading. Others tried their hand and electronic trading, with mixed results. Yet other refused to give up trading the floor. But at the end of the day there is no doubt in my mind that the introduction of electronic trading has benefited the market more than it has hurt it.

The benefits are many – for starters, the end investor is getting screwed less on the spread than ever before in history thanks largely to high frequency traders and market makers. Prices are updated almost instantaneously in real time across all players in the market, which is another win for investors. And there can be no doubting the benefits of anonymity, reduction in errors, and reduced market impact.

The nerds have had their revenge, but Floored ensures that the legacy of the jocks of the trading floor will never be forgotten.

Floored the Movie – Official Site

If you’re a part of a support team which spans the whole Asian region then chances are at some point you will find yourself on a business trip to another office. If you’re not based in Hong Kong (in my opinion the Mecca for tailored clothing) or Singapore, chances are you could benefit from getting some shirts and/or suits made up.

I’ll give some general advice in this post, then give some specific recommendations by region in follow-up posts.

  • Suits are 100x more difficult to get correct than shirts. If it is your first time getting tailored clothing made, my recommendation is to stick with 5-10 shirts. Even these, you’ll need about a week for the initial measuring, second fitting, then final fitting and pickup. If there is a mistake (they spelled my name incorrectly on the sleeve one time) then you may need another 1-2 days (or risk getting them to send the items to you via air mail). For suits, you really need two weeks.
  • Asian tailors don’t have the same sense of fashion as Western tailors. For starters, most Westerners who have had suits tailored in Asia will tell you that the first suit they ever had made up had enormous shoulder pads. Whereas on Saville Row you could walk in and the tailor would make suggestions based on their experience, you’d be hard pressed to find one in Asia who would make suggestions you would be 100% satisfied with. The moral of the story is to have a good idea of what you want before going in, especially in the case of suits. Research is key (and takes time, but the feeling of satisfaction when you first try on your garment will make it well worth the effort)
  • You get what you pay for. The labor in Asian countries is where the major savings are, but more than half of the cost of the final garment is going to be for the fabric.
  • Having said that, again, the more research you can do on fabrics and expected costs the better. You will find people who work with the same suit and shirt fabrics which are being used on Saville Row. This is particularly true of Hong Kong. However, don’t try and squeeze the last penny out of your tailor (especially if he is the person who actually puts together your garments, instead of sending it away to a sweat shop over the border). Bargain with him if you feel confident, but let him make a profit too.
  • When you go in to the tailor, go there looking awesome. If you already have tailored clothing which is of good quality, wear that. Otherwise, well-fitting name-brand business attire, or in a pinch very stylish casual wear will also do. Spend a little extra time on your hair. You will be shocked at the difference in service.
  • The same applies to the number of shirts you order. If you only plan to order one shirt, forget about it – it’s not worth his time, and because the tailor doesn’t care about your repeat business you won’t get something that is representative of his best work.

    As a rule, I try to stick to five shirts, but invariably end up getting about seven or eight. I swear, there is something in the material swatches to which you get addicted (apart from the finger-sweat of 1000 customers who have flicked through the swatch booklet before you).

  • Getting shirts and suits tailored is addictive, so make sure you set a budget and stick to it. Again, research is key so you know the prices.
  • It’s also addictive in the sense that if you use a tailor more than once, you fix all the things that were not quite right the first time. This is an important point, especially when considering suits: You probably won’t get the perfect garment the first time you use any particular tailor. In fact, for suits in particular, it’s a process of continual improvement (think Japanese “kaizen,” that buzzword in manufacturing from the 80s). A good tailor should keep notes about you too, so by the time you have had a few suits made up he will have a pretty good idea of how to put together a suit which is perfect for you.
  • Prices vary greatly. As a rule, if you have chosen your tailor well then you can expect to get what you pay for. Avoid anywhere that is offering USD100 suits, or any place which has touts out on the street. USD400 would be the minimum I’d expect to pay for a very nice standard first suit, with two pairs of trousers, Japanese, Italian or English wool fabric.
  • If you are trying a new tailor and already have a shirt that fits you well, bring it along! Asian tailors have made me “copy” shirts of designer labels that are better tailored than the original!

Hopefully these tips will get you started down the path to getting some perfect garments tailored on your next business trip to Asia (and avoid getting ripped off by the infamous touts!)

When an incident occurs and you’re manning the phones it can be a challenge to keep your eye on what is important. Phones ringing, connection to several exchanges gone “red,” your company’s trading system melting down around you. Sales people yelling at you to “do something.” So how exactly do you prioritize in a case like this?

The simple answer has traditionally been “follow the money.” If an incident has a chance to impact PL, such as a position which a client claims isn’t theirs, as trade support staff you would ideally investigate, find evidence of whose trade it actually is and alert that client. If the client pushes back then you help the client’s sales representative put together a case and let them deal with the client. Under no circumstance do you leave the office with an issue like this unresolved.

So the one risk you have to be aware of is Impact to PL. The other two often-overlooked risks are:

  • Impact to Reputation
  • Impact to Ego

Yes, you have to be aware of hurting people’s egos. After all, these are often traders we are dealing with here, and way up there on the top of their Ivory Towers traders often have the most fragile egos of all. But more on this in a moment.

A quick search on Google will show that vast amounts of research has been done on managing Reputation Risk. And rightly so – nothing gets media outlets more excited than a scandal which could potentially destroy the reputation of a major firm.

The thing about damaging a company’s reputation is that oftentimes it is not due to a single mistake, but a corporate culture that encourages something bad (eg sexual harassment, cooking the books, etc), and often involve a systematic approach which spans months or years.

This does not mean you are safe to make mistakes while supporting DMA clients.

Each time you make a mistake, even if it has no impact on PL, it affects the reputation of your company. Over time, these mistakes add up, and your company can start to get a reputation for “bad service,” for example.

While this is probably not going to make front page news, don’t think for a moment that your clients don’t talk to each other. Whether it is two hedge fund managers catching up over beers and peanuts, or something more structured, people invariably get together and talk, and bitching about service is a favorite topic for people with money in Asia. All you need is one industry study on client satisfaction levels and if you have not been careful you may wake up one day embarrassed to find out that your company rated lowest in the region.

Of course, if you love making clients happy then I imagine this is not something you need to fix per se, rather something to keep in the back of your mind, especially in the heat of an incident.

Depending on your particular support model flavor you can sometimes find yourself forgetting that you are not in fact supporting machines, but the people who are invested in those machines. I don’t care how technical your role is, at the end of the day your job is to make someone happy.

The opposite of making someone happy is making them lose a lot of money, or as is especially important when working with clients in Asia, making them lose face.

Peoples’ egos can be fragile at the best of times. From your boss to your internal sales team, through to your external DMA clients, bruising the egos of those who directly or indirectly determine your bonus is not recommended.

Your boss, for example, should understand that his request for you to fill in your Performance Review documentation takes lower priority during a market-hours outage than making sure there are no outstanding positions. However there is a difference in terms of bruising his ego between snapping at him “Can’t you see I’m busy?!” in front of his peers, and telling him you will be with him shortly.

The same applies when dealing with clients. It sounds like common sense but you must do your best not to say anything to clients which may bruise their ego, even if they have started getting angry and insulting you. A bruised ego could see the client trade away to another broker for anything from a day to a lifetime.

Fortunately I would say that there is no-one else in the company better equipped to deal with clients under pressure than the DMA Support team. Additionally, “Ego Impact Risk” is the least direct of the three risks.

At the end of the day there aren’t any hard-and-fast rules about what to prioritize when things are going nuts. I can’t be sitting there next to you to hold your hand, and your teammates may be busy with clients on other calls. However it is important to at least be cognizant of these three risks and their potential impact.

When it comes down to it, a lot of what you do when supporting external DMA clients is reducing the risk to which your company is exposed. You will learn from experience – after a while prioritizing will come naturally to you. In the worst case scenario, where there is actual damage to PL, reputation or someone’s ego, you should acknowledge the loss but be able to explain why you prioritized the way you did.