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Direct Market Access System in Taiwan

Direct Market Access System in Taiwan. Pony Bo-Li Huang Taiwan Stock Exchange Corporation Nov 12, 2007. Outline. The TSEC DMA System DMA Regulatory Issues Algorithmic Trading Issues. 2. The TSEC DMA System. 3. TSEC DMA System. Leased-line or closed private network. Investor.

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Direct Market Access System in Taiwan

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  1. Direct Market Access System in Taiwan Pony Bo-Li Huang Taiwan Stock Exchange Corporation Nov 12, 2007

  2. Outline • The TSEC DMA System • DMA Regulatory Issues • Algorithmic Trading Issues 2

  3. The TSEC DMA System 3

  4. TSEC DMA System Leased-line or closed private network Investor Securities Firm Exchange

  5. Current Status of Taiwan DMA Market • TSEC DMA system, launched in June 2006 • Market Conditions : * 26 approved DMA securities firms. * 1,688 approved DMA users. * the DMA trading value accounts for 0.71% of our total market transactions. (as of 2007/10 ) 4

  6. DMA Participants Analysis

  7. DMA’s Monthly Trading Amount and its Market Share Thousand NT $

  8. Comparison of Electronic Trading Methods in Taiwan ◎ : Best ○ : Good ▲ : Average

  9. Participants Roles In DMA • Investors: place orders through DMA according to their personal trading requirement • Securities Firms • submit the application to the Exchange and provide DMA to its investors. • verify the client’s orders and fulfill the obligation to settle. • report the DMA transactions to TSEC

  10. Participants Roles In DMA (cont.) • Sponsored Access Persons (SAPs) * those who provide closed network service • TSEC * verify the brokers’ DMA applications * provide DMA regulations * audit the brokers on DMA’s risk control and transaction safety

  11. DMA Regulatory Issues 11

  12. Requirements for Securities Firms to Conduct DMA Business • Framework and flowchart of transmission information. • Reasonable evaluation of control mechanism (Including authentication, data integrity, data confidentiality and non-repudiation of trading). • Amend internal control & audit rules 12

  13. Trading regulations and data transmition obligation for a DMA Securities Firm * Submit investors’ account data to TSEC before the first trade. * Transmit the order numbers afterthe transactions * Set up a filter function

  14. DMA Trading Access Point • In Taiwan: electronic signature for verification is required. • Outside of Taiwan: no electronic signature requirement but abide their own local laws and regulations.

  15. Risk Control Mechanism • TSEC: No additional risk management system for DMA transactions. TSEC reserves the right to temporarily stop, limit or suspend the DMA orders from securities firms. • Securities Firms: Implement credit and risk management to clients. • Inter-market Alert Mechanism. 5

  16. 3. Algorithmic Trading Issues 16

  17. The status of algorithmic trading in Taiwan markets There is insufficient statistics to show the importance of the algorithmic trading in Taiwan market.

  18. Some possible IT mechanisms that can be taken to achieve better latency time in Taiwan • Cancel the mandatory requirement of electronic signature for DMA trading. • Adopting the trading continuous execution mechanism rather than call auction. • Investors directly place order with TSEC, without the intermediary of securities firms.

  19. Measures have been taken with regard to market data dissemination • Trading Halt. • Matching order once every 25 seconds. • A Broker cannot place next order until it has received the confirmation from TSEC. • Should there be any problem happened to any specific stock, the affected stock will be switched to single matching system and the brokers will be asked to transmit the orders through separate channels.

  20. Thank you Pony Bo-Li HuangVice President of Trading DepartmentTaiwan Stock Exchange CorporationTel: 886-2-8101-3573E-mail: pony@tse.com.tw

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