JP Morgan Asset Management (JPMAM) has changed the way it handles international orders for buy-side firms trading in and out of Taiwan’s markets. 

Since going live in 2018, JPMAM has routed trading for all Taiwanese securities from portfolios sitting outside of Taiwan through its Taiwanese Center of Excellence. Orders for non-Taiwanese securities from the Taiwanese desk are routed directly to JPMAM’s existing global hubs for execution. 

The number of orders sent to Taiwan for execution by JPMAM’s global teams has gone up 65% since this initiative went live. 

For example, previously, if portfolio managers globally put in an order for Taiwanese securities, it would have to be reproduced by the local desk in Taiwan. Rather than reproducing those orders locally, JPMAM can now send all orders for Taiwanese securities for portfolios globally directly to the Taiwanese desk. In addition to Taiwan, it has centers in Hong Kong, New York, and London.

By doing this, JPMAM leverages more of the local expertise and talents of each desk, says Lee Bray, head of trading in Asia-Pacific at JP Morgan.  

As a result of the change, JPMAM’s percentage of average daily volume (ADV), which measures the order size compared to ADV in a given stock, showed an increase for Taiwanese equities from 6.2% in the second quarter of 2018 to 53.9% in the fourth quarter of 2018. 

The number of orders sent to Taiwan for execution by JPMAM’s global teams has gone up 65% since this initiative went live. 

Trading activity for Taiwan-domiciled accounts can now be aggregated and traded in block orders, which has also led to slippage on Taiwan accounts decreasing over a quarter by five basis points for offshore markets and by 40 basis points for accounts outside Taiwan investing in Taiwanese stocks in the fourth quarter of 2018. 

Bray says the Taiwanese Center of Excellence is part of an initiative by JPMAM to upgrade and harmonize its internal systems.  

He explains that JP Morgan invests significantly in technology, and since he joined in 2013, JPMAM has been harmonizing its global systems. “So when it actually came down to changing the back-end processes within our trading system, it was very easy for us to do,” he says. 

Now the Taiwanese desk runs on the same system as JPMAM’s desks in the region.

He says it was a matter of putting specific rules in place for the system to understand where to execute certain orders.

“For technical reasons, if you have a lot of different systems, they become slightly more difficult because given that we’ve got—for the most part—a system that everybody is on, it makes it a lot easier than it would be if we had all different systems, from a trading perspective,” he adds. 

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Before JPMAM could put this in place for its Taiwanese desk, it had to get the all-clear from Taiwanese regulators. Morgan Chang, head of Taiwanese trading at JPMAM, says the project was initiated in 2015 and the regulators concluded that it would be better to have an open conversation with other asset managers in the country. 

Chang says the project is part of a commitment made to Taiwan’s Financial Supervisory Commission (FSC) to build out businesses in the city-state within an official program called the Deep Cultivation Plan.

The plan, initiated by the FSC in 2013, conducts annual reviews of foreign asset managers, including evaluating the cultivation of local talent. In return, fund managers benefit in the form of permits that allow them to introduce new types of funds and submit more products for approval at one time.

“Initially, we raised this to regulators, who think this is good for the whole industry. So, I then went to the Securities Investment Trust and Consulting Association (Sitca), Taiwan’s asset management industry body, and gave a presentation to the members there and reached conclusions. Eventually, we filed the presentation to regulators,” says Chang. 

Bray says JPMAM will continue working with Taiwan’s regulators to improve some of the workflows within the firm as well as to increase the visibility of the Taiwanese market.

“It works both ways, as we could leverage the expertise of [the] local trading desk, who obviously are experts in the Taiwanese market and the rest of the world’s expertise—for example, the trades in Hong Kong would then flow from Taiwan to Hong Kong,” adds Bray.

He sees the trend of setting out local trading desks not only changing JPMAM’s internal processes, but global asset management firms of similar scale. “It’s a global trend to have more consistent approaches to how asset management does things,” he says.

With additional reporting by Kate Lin.