The $30 billion market data industry is rapidly evolving with many firms now providing a wide array of managed service offerings. Nowhere is managed services becoming more prevalent than in the Asia-Pacific region where accessing global markets and counterparties can be challenging given vast geographical distances and significant regulatory, cultural, economic, and linguistic differences among the various countries in the region. There was a lively panel discussion on this topic at the Asia-Pacific Financial Information Conference (APFIC) which took place in November at the Renaissance Harbour View Hotel overlooking Hong Kong’s stunning Victoria Harbour.
The debate began with a discussion on the differences between managed services and outsourcing. The biggest distinction highlighted was that managed services are measured on the ability to deliver target service levels while outsourcing is measured on the ability to reduce costs. Additionally, managed service deals need not be structured over the long term to be profitable while outsourcing contracts are typically priced over multiple years. In essence, a successful managed service provider manages processes more efficiently than a capital market firm itself does.
Panelists also discussed the many advantages of managed services including how it enables capital market participants to:
- Focus on core competencies
- Protect against market and regulatory change
- Benefit from industry best practices
- Manage risk
- Increase speed to market
- Keep ahead of technology obsolescence
- Reduce capital and operational costs
- Gain a better understanding of local tax, legal, administrative, and regulatory issues
A number of factors make managed network services a compelling value proposition for capital market participants in the Asia-Pacific region. The right type of connectivity can be a key differentiator and enable firms to generate alpha, capture liquidity at the best available prices, achieve best execution, and reduce market impact. This is particularly true given that the region’s markets are fragmenting and venues such as Chi-X Japan, SBI Japannext, Chi-X Australia, and Asia Pacific Stock Exchange have emerged. Other key drivers of managed network services in the region include regulations, the need for a ready-made financial ecosystem, latency-sensitive trading, block trading, business continuity planning, and intra-firm collaboration.
Lastly, panelists highlighted the key attributes capital market firms need to look for in a managed service provider including:
- Having a ready-made ecosystem with global reach that offers connections into virtually all financial centers
- The ability to provide flexible and tailored technical and commercial solutions to meet exacting business requirements
- Focus and expertise on the capital markets – built exclusively for the capital markets and tailored to a firm’s operational needs
- Competitive service level agreements under a single global master service agreement
Given these very demanding requirements, very few managed network service providers are equipped to navigate the maze of Asian financial markets and provide opportunities for trading firms to profit in this rapidly growing region. Selecting the right vendor for managed services and connectivity in the fragmented and disparate Asia-Pacific capital markets is critical to mitigating business risk and competing effectively.