The new Global Equity Segment: what should Asian investors know?
Brian Schwieger, Global Head of Equities, London Stock Exchange Group
When Asian investors and brokers learn that about five per cent of global trading in Samsung securities occurs daily in London, or that one of the most popularly traded ETFs in London is an S&P500 ETF, some are surprised. They should not be.
One reason can be stated in just three letters: GMT. Sitting in the time zone at the centre of the global business day, London has always been the great bridge for the world’s financial markets. Combine that unchangeable position with deep pools of global liquidity, market expertise and a globally respected regulatory infrastructure and legal system, London is uniquely positioned to respond to the evolving needs of an increasingly global pool of investors.
The launch of the Global Equity Segment (GES) in October is a clear demonstration of this unique position. It also shows how our approach to innovation – working in partnership with the market – can bring together different market participants who have never previously interacted with one another.
The Global Equity Segment will bring 50 of the most actively traded US securities and 30 liquid Chinese ADRs to be accepted for trading on the MTF operated by London Stock Exchange. It will be available during regular London trading hours. The segment has been designed to meet investor demand, and will feature large listed names such as Google, Amazon, Apple and Facebook alongside Alibaba, Baidu and Tencent Music.
How will GES work? The answer: quickly, cheaply and efficiently. It will use the well-established CREST depository interest (CDI) workflow, settling and re-aligning through existing Central Securities Depository (CSD) linkages between the UK and US (Euroclear UK & Ireland and Depository Trust & Clearing Corporation). This means investors can trade and settle international securities just like a domestic instrument.
For Asian retail investors, the GES provides the ability to trade US securities or Chinese ADRs listed in the US in a live market, rather than up having to stay up until the US market opens or leaving overnight orders through their broker. For the first time, Asian retail and institutional investor demand is being matched with London’s global liquidity providers who are willing to make markets.
The new segment will therefore provide retail and institutional investors with the opportunity to reduce time zone risk, the efficiency of a real-time valuation management platform, as well as exposure to global securities.
This innovation reflects a larger, oncoming trend. Until now, stock markets have lagged other financial instruments, such as foreign exchange or commodities, in terms of providing meaningful liquidity 24 hours a day. Stock markets have tended to be local: investors have only been able to trade in the securities of a particular company when its home market is open. This will change as new technologies such as Distributed Ledger are developed. This is a sector where London leads the world.
The creation and launch of the GES is a step which could not have been taken by any other financial centre, because of London’s market understanding. With this new segment, London is bringing together knowledge and expertise from across the ecosystem in a unique way.
We also have the expertise and strength to deliver this at scale. At present, the total daily value traded across London’s international order book averages around US $300m. The GES is set to accelerate this. Our aim is to expand beyond US securities, and in time to work with other exchanges to enable the trading of London-listed securities outside the London time zone.
So, in my conversations with Asian investors and brokers, one thing has been no surprise: their response to the new Global Equity Segment has been extremely positive.