Chinese market structure is completely unique, making it difficult for global trading firms to compete in China, and for domestic firms to offer their services on the global stage. FIX Trading Community’s China Working Group has been quietly working away with the key players in China to look at the issues and opportunities as China’s capital markets slowly open up to the world. We spoke to China Working Group co-Chair Huayi Dong to find out more.
What are the three top things the China working Group is looking at right now?
Broadly speaking, we’re introducing and enabling the FIX protocol for the Chinese and China-based trading community. In the past few months we’ve organized meetings alongside FIX members in China, including the Shanghai and Shenzhen Stock Exchanges, vendors and buy/sell side firms. We’ve brought together members of the working group to discuss the reasons for using FIX protocol; and sharing experiences on why, historically, firms in China have not been doing so, as well as how to progress further.
The market in China is definitely familiar with FIX, but the language is a bit of an issue. Traditionally, when the equity market first started, Chinese developers often prefered reading Chinese based documentation rather than English. This has changed significantly during the past 10 years or so, as English is becoming more prevalent in China. The more complicated issue is that because China has a very unique settlement, business logic, and compliance requirements, vendors had created their own protocols to cater to these unique requirements in the past, and there are some benefits for them in having their own ecosystem in order to capture larger market shares. However, most of the large vendors also provide FIX connectivity with limited functionalities, as they expand their client base to cater for clients outside of China, it’s a balancing act.
We’ve also been assisting members who have specific questions related to the protocol or its future development, and helping them connect to the technical working group or other related committees to provide inputs and advice. We have been working to provide as much assistance as we can to those who are looking to expand their businesses outside China. We are sharing market norms and the experiences of other international businesses for implementing or using FIX.
Our next step is to kick off some in-depth analysis of legacy issues, such as specific business processes, that prompted the creation of proprietary APIs in the first place. The market in China is not very different from outside of China in that there are a few major dominant vendors. It’s very different, however, in that none of the dominant global vendors are there, because of the complexity of the domestic Chinese markets. From settlement to regulatory monitoring to business processes, it is unique, and difficult for anyone from the outside to successfully break in. But it’s also difficult for those inside to break out, as their product and strategy have been tailored to fit the Chinese market. So we need to seriously understand why things were done the way they were, what has changed, and how things like system architecture and processes need to be done to fit a broader global model for the benefit of both.
The China Working Group is a platform for exchanges, asset managers and the sell side to interface with the technical and business community within and outside of China. We strive to understand what the challenges are and what needs to be done. It’s a slow process, as the domestic market is large enough to keep everyone busy, but everyone is seeing the long term need for collaboration, as well as standardization, in order to plan strategically. That’s exactly what FIX is designed to do, help all members grow together in the right direction.
How is the market landscape around your working group changing at the moment? What major drivers are affecting this?
The biggest driver is the need for China to open up to the international market, slowly but surely. That has been somewhat simplified by having China Connect, Bond Connect as well as the introduction of London Connect. We are working with other working groups on RMB internationalization efforts as well. There are many historical reasons why China is unique. As China opens up for domestic and international investors, technology and business processes need to merge and standardize in order to be more efficient. We see the equity market opening up, more volume, MSCI inclusion, RMB product settlement, QFII, RQFII, QDII. The domestic regulars are doing a wonderful job on simplifying operations, but from a technology perspective there is much more that can be done to help expedite this process.
What role does FIX APAC play in meeting and addressing these changes?
This is where you will find some very interesting discussions. I’m involved heavily in ASIFMA and other industry groups, largely they can be defined as lobbyists, who will go to regulators and present the industry view on regulatory changes, and business change details. FIX is more technology focused, we help to automate business processes where they’re manual, or enable a smooth transition and strategically plan for systems for the future. We help each other, not just on standardizing the protocol, but enabling firms to meet their goals without heavy future investment in systems.