Fidessa is a global financial technology company that supplies technology and services to large brokers and banks, as well as to the Australian Securities Exchange.
IW: What does Fidessa do in Australia?
DJ: There are a number of different angles to our business. There's a sell-side trading platform - that's the front office through to middle office that provides services to access the market across both ASX and Chi-X for sell-side institutions.
Then there's also a buy-side platform which is for the fund managers and asset managers. There are several elements to that platform.
In between, there's a connectivity network which is a way for buy-sides to connect to sell-sides. That connectivity network is global - it automates flow coming into Australia and flow going out. It's really a front-to-back service from buy-side to sell-side to market.
Our focus is mostly on front-office trading through to middle office; we don't do back office. Our biggest business these days is our application service provisions.
How are you impacted by the various regulatory changes?
Technology providers are usually the first to bear the cost of regulatory change so we're very on top of what regulation is coming down the pipe and what members are asking us to do with the platform to provide compliance.
For us, the impact is more on the market structure - that's what directly impacts us. Changes to super obviously affect the funds that are buying. That has some knock-on impact in terms of volumes and things, but not directly with us.
We're directly impacted by regulation on dark pools, the addition of new markets and best execution policies - all those things have to be reflected in our platform to provide compliance. When people buy a platform like ours they expect it to be compliant with the market you're trading on so we have to provide the tools for them to remain complaint.
Australia's seen its fair share of change over the last couple of years. It's one of the markets where we continually have to reinvest in the platform to ensure it stays current with regulation.
What's your view of dark pools?
We provide the technology that allows people to run a dark pool, but in terms of having an opinion, we don't take a side. There are pros and cons with dark pools and the regulator is taking a balanced approach to determine what the rules for dark pools should be.
We certainly have a broad view - we see the regulation in Hong Kong, we see what they're trying to do here by setting crossing rules around the mid price for example. They're banned in Singapore and India. It does give us a perspective.
ASIC has alluded to bringing in tighter controls for dark pools [but] licensing doesn't really solve the problem of people not having transparency.
It will be interesting to see what ASIC does about dark pools. They're saying they need to be more heavily regulated, they're talking about things like licensing schemes on the basis that they're a market and they want to license as per the market rules that an exchange would have to go through.
They are a very effective tool for a broker to differentiate and [they] allow them to find liquidity they couldn't get otherwise. The problem is if they overregulate they will become so normalised it will be impossible to differentiate. The whole benefit is that they allow competition in the intermediary space, so there's a risk of overregulation.
What other trends are you seeing in Australia?
With the changes to the market structure there are trends towards crossing off the ASX and crossing on Chi-X which is pumping up the volumes on Chi-X. We anticipate there will be less priority crossings on Chi-X as the new market integrity rules say that for anything covered under those rules, the instruments now fall under the NBBO (National Best Bid and Offer), not under the priority crossing rule, but there are still priority crossings out there. That will probably drop off.
What impact is the addition of Chi-X having?
Market participants are starting to deploy the technologies now that allow them to access the Chi-X market and to sweep across both venues. The volumes are continually going up - the volume is about 15 per cent, of which a large portion is actually crossing. If you take that away it probably drops down to 6 or 7 per cent.
It's gradually growing. We're nearly reaching the threshold of 10 per cent actual liquidity on Chi-X rather than just crossing. Maybe after 10 per cent we'll see another uptick in the volumes because people will have to start to go there as a priority.
How hard is it to stay up to date with regulatory changes?
It's not really a problem in Australia but it's a case of how much notice we get. People don't realise how complicated IT systems can get so turning them on a dime isn't possible; it takes some time to look at the impact and make changes. ASIC are pretty good - they give a long window [for] compliance normally. We're OK with that.
The countries we try and look forward on are the ones that can announce things and not give time to comply. Korea and India are the two lead cases -they'll make up a regulation and tell everyone they have to be compliant but not give us time to look at the product impact and make changes to the software.
We get hit pretty hard by regulatory change. Fidessa as a company in the Asia-Pacific completely outsources the trading operations of around 40 brokers. That's 40 upgrades that need to happen next time the regulation changes.
It's a bit of a factory trying to get people onto complaint platforms every time there's a change. But Australia tends to move pretty slowly - you can generally see the changes a long way off.
The biggest impact of all is the risk changes that have been occurring across the region. Everybody's looking more seriously at counterparty risk, credit risk for trading, and that's been the biggest change. Small tweaks to dark pools and HFT won't affect us as much as a technology company.
