Smart Order-Routing Has Different Purpose in Asia

In the US and even in Europe, smart order-routing (SOR) is advancing at a rapid pace. The evolution has been so dizzying, in fact, that industry experts can't even agree whether we are seeing second- or third-generation routers, or whether it changes so fast that a label can no longer be given.

In Asia, though, it's different, says Ruth Colagiuri, head of Americas electronic products at Bank of America Merrill Lynch (BAML). She says Asia is an interesting frontier for smart order-routing because SOR plays a different role there than in the US. In Asia, SOR is used more as a tool to help create uniform trading throughout the disjointed region.

"In Asia, we find that the purpose of the smart router is a little different," Colagiuri says. "You don't have the same kind of fragmentation of markets that you have in the US, but what you do have is a very large number of venues you can access that are very individual, with specific rules and nuances."

If there are certain order types that are not supported, such as iceberg or peg orders, those are things that smart order-routers can simulate so that the client doesn't have to constantly update their own knowledge of every single market nuance.

"The role of the smart router in Asia is to help to normalize behavior across the different markets," Colagiuri says.

Asia currently lacks the infrastructure, historical reference data, connectivity and microstructure market activity for firms to be able to fine-tune a sophisticated order-routing technique, says Adam Honoré, senior analyst at consultancy Aite Group.

He believes technology upgrades will be the easy part for Asia to advance in this realm, and that creating a uniform market structure will be the hard part.

"Every venue over there and every country has its own set of rules and its own set of trading guidelines and regulatory oversight," he says. "Right now, you are seeing technology being used to smooth that out."