Asia’s Investors Seek Efficiency Gains Through Automated Trading

The adoption of automated trading has taken the Asia-Pacific market by storm. From introducing AiEX, our Automated Intelligent Execution tool, over ten years ago to achieving the rate of usage we are seeing today, the journey has been a whirlwind. Looking at the year ahead of us, the Asia-Pacific region is primed to become increasingly automated. In fact, we believe the number of AiEX users in 2024 will top four times the number of users we had in 2020, as traders increasingly focus on high-touch transactions where they can really add value.

In its early days, AiEX optimised the execution of U.S. and European government bonds, followed by credit bonds, exchange-traded funds and derivatives instruments. It has now gained a solid foothold in APAC, where the adoption of automation has happened even more quickly than in Europe and the U.S. For example, 40% of Australian government bond trades are currently being automated, a figure that could potentially reach up to around 80% in the future. Just like their Australian counterparts, Japanese government bonds are relatively liquid and have reached higher levels of automation.

Meanwhile, emerging Asia bonds have steadily marched towards global index inclusion; first with Chinese bonds being incorporated in major fixed income benchmarks and now with Indian sovereign bonds starting this year. As more instruments from Asian countries are being included in global indexes, demand for passive portfolio rebalancing has substantially increased. This has strained resources for local trading desks, who suddenly found themselves having to do more with less and, subsequently, sought to become more efficient.

Today, we are seeing our asset management clients continue to adopt low-touch or no-touch solutions to manage their workflows. Systematic traders, like hedge funds, and sovereign wealth funds are not only picking up on electronification, but are also moving straight to the automated tools that come with the territory. While they may not execute the same number of transactions, they have found ways to use automation to achieve certain trading strategies. For instance, executing multiple trades contemporaneously, or setting up automated instructions for very large tickets within their desired set of parameters.

Last year, we rolled out automated trading for Chinese bonds, leveraging our past collaboration with the Chinese authorities and various partners on the Bond Connect initiative, as well as the newly launched Swap Connect channel. After successfully completing a trial period with a client, we went live with the service in early 2023 to a very appreciative foreign investor community. This remarkable development would have been difficult to predict even a couple of years ago. Sure enough, China’s bond market is now the world’s second largest, and yet its markets still feature many manual processes that diverge from what international investors experience in other parts of the world. AiEX has become one of the tools that help bridge that gap, playing an important facilitation role for foreign participation in the onshore Chinese fixed income market.

There is a lot more on the horizon for AiEX, including more solutions for the swaps market and Asia’s investment grade credit. Furthermore, many sell-side market participants in Asia have not yet capitalised on the benefits of automation, something that we are actively working on changing. Tradeweb’s acquisition of Yieldbroker in 2023, with its leading offering for Australian and New Zealand government bonds and interest rate derivatives, brings to market the time limit order book, a powerful tool that creates much-needed certainty in the execution process.

As the world grapples with how to harness the power of artificial intelligence, we are also seeing the various forms of algorithmic trading as the next frontier in trading. Many clients already use AiEX’s rules-based trading system to mimic the functions of algos, where it is possible to split up large orders over time to spread out execution and distribute risk. This is a space we are closely monitoring, and expect to advance further at an accelerated pace. Our recent acquisition of r8fin means we are now able to use the company’s sophisticated technology to open up new opportunities for our network of clients engaged in relative value or macro trades across multiple asset classes. All of these developments across APAC are bringing us to a collective end result of making financial markets more efficient, and as ever, Tradeweb is focused on supporting this evolution by streamlining and automating traders’ workflows.

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