Asia Pacific: Adoption of Electronic Trading and a Buy-side Perspective George Molina, Director of Asia Trading, Global Capital, Franklin Templeton Investments Co-Chair, FPL Asia Pacific Regional Committee

Topics Introduction Electronic Trading – The Revolution in Asia The Reasons for Electronic Trading FIX and Electronic Trading Questions Introduction Electronic Trading – The Revolution in Asia The Reasons for Electronic Trading FIX and Electronic Trading Questions

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 3 The Revolution in Asia The World of Finance is changing dramatically Spreads are shrinking Commissions are shrinking Liquidity is becoming more fragmented, and international in character Decisions are made much more quickly Technology is driving many of the portfolio management and trading decisions New trading strategies are taking advantage of technology to find price discrepancies in micro-seconds Technology is also driving the Sell-Side to improve their processes

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 4 What is driving the market to electronic trading? Pressure on spreads, efficiencies which is led by buy side directing a larger portion of their flow to brokers with FIX. Commissions are falling Market Impact is becoming better understood, so volumes are increasing while the overall value of the trades is dropping New Trading Mechanisms, like Electronic Commerce Networks (ECNs) and Alternative Trading Systems are questioning the very nature of both brokerage services and the traditional exchange

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 5 The Response More efficient processes in the fund management and brokerage areas, as well as the exchange Fund Managers are: Looking for greater say in the process of trading Using Technology (Service Bureaus like Elkins McSherry, Plexus) to help them understand Market Impact and Trader Performance so they can try to prevent negative impact Brokers are: Finding ways to bring liquidity to participants (indications of interest, crossing) Looking for systems to help them minimize negative Market Impact Exchanges are: Upgrading and opening up their systems Partnering with other exchanges to form regional trading blocks that can compete with the ECNs and ATSs.

1. Market trends - traditional buy and sell- side Volumes increasing Errors increasing Stricter regulations Shorter settlement cycles T+1 Trader performance measurement Liquidity fragmented Cost pressures In summary - more to do, less time to do it in, and a need to do everything smarter, faster, better Volumes increasing Errors increasing Stricter regulations Shorter settlement cycles T+1 Trader performance measurement Liquidity fragmented Cost pressures In summary - more to do, less time to do it in, and a need to do everything smarter, faster, better

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 7 Broker A IOI’s Broker A IOI’s Broker A IOI’s Broker A IOI’s Broker ABC IOI’s Research feeds Internal orders Market data Market data Newsfeeds ECN 1 Market data ECN 1 ECN’s ? Information overload

Empower the buy side trader Autonomy Broker selection Trading style Technology Connectivity – access to diverse liquidity pools - IOI’s, exchanges, ECN’s Devote resources to meaningful orders Automate easy order processing Direct access + smart routing + auto-working Reduce clerical effort Reduce errors Control and manage information Autonomy Broker selection Trading style Technology Connectivity – access to diverse liquidity pools - IOI’s, exchanges, ECN’s Devote resources to meaningful orders Automate easy order processing Direct access + smart routing + auto-working Reduce clerical effort Reduce errors Control and manage information

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 9 Broker A IOI’s Broker A IOI’s Broker A IOI’s Broker A IOI’s Broker A Research feeds Internal orders Newsfeeds ECN 1 The solution – technology TRADE ORDER MANAGEMENT SYSTEM

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 10 ISITC SWIFT OASYS / GSTPA FIX PORTFOLIO MANAGEMENT TRADING OPERATIONS BUY SIDE INTERNAL STP RESEARCH TRADING OPERATIONS SELL SIDE INTERNAL STP CUSTODIAN Why? - Connectivity for STP

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 11 Where are the Exchanges in all of this? Numerous Exchanges have adopted FIX as a baseline standard for connecting electronically. For example: NYSE NASDAQ London Stock Exchange Singapore Stock Exchange Sydney Futures Exchange Euronext Jakarta Stock Exchange Many Others

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 12 What will FIX bring to South Africa Global standard adopted by 800 institutions on 5 continents Easier access to the world’s markets More seamless integration with the world’s investors Greater efficiencies in front and back office processes

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 13 Nuances with FIX in Asia 1.IDs Needed to trade in Korea and Taiwan 2.For sell trades, sufficient share amt needs to be verified at local depositories before trade can get to the market. TW mkt makes it a broker responsibility while KR will check the share inventory after trade is sent to the exchange. 3.India – Two Active Exchanges 4.Not all exchanges are FIX 5.KR/TW/India exchange access are pretty much dominated by local vendor providers due to language issues (exchange specs are in Korean and Chinese)

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 14 How is FPL Structured? Global Steering Committee Regional Steering Committees in : Europe Asia (ex-Japan) Japan America’s Emerging Market Working groups with specific goals (e.g. in Asia): Technical Working Group Indications of Interest Working Group Exchange Working Group Education Working Group

Electronic Trading can dramatically improve business efficiencies Electronic Trading can drastically reduce trading and settlement errors Electronic Trading can open up opportunities that did not exist previously Electronic Trading will help save money in the long run Electronic Trading can drastically reduce trading and settlement errors Electronic Trading can open up opportunities that did not exist previously Electronic Trading will help save money in the long run

二○一六年六月七日星期二 二○一六年六月七日星期二 二○一六年六月七日星期二 16 Questions?