How Singapore can help shape the future of Asia's financial markets

IN THE blink of an eye, a high-speed trading computer can execute 200 million trades today - each action taking just nanoseconds. This is light years ahead of how trades used to be done decades ago, but it is not just about speed.

Technology will continue to shape how trading is done and the trading desk of tomorrow will look vastly different. Trading houses equipped with better technology will enjoy an edge.

The world is knee-deep in a tech revolution and Asia is poised to be at the forefront, with the region's financial markets shadowing its economic growth trajectory. For example, Asia's bond markets have experienced phenomenal growth, with annual issuance volume rising ninefold in the past 2 decades, accounting for a quarter of annual global bond issuance volumes today.

Asia is also home to 3 of the world's top 5 FX centres, while the weightage of Asian securities in benchmark indexes continues to rise - a clear indication of the region's rising economic importance.

As a key financial centre in Asia, Singapore plays a critical role in enabling the region's development and deepening its connection to global markets.

Singapore as a connector

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With its world-class banking, digital and legal infrastructure, and vibrant global talent pool, Singapore is well-poised to play an integral role in the further development and digitalisation of Asia's financial markets.

For one, financial institutions in Singapore continually raise the bar by leveraging technology to provide customers a differentiated experience. For instance, to propel efforts to create a more efficient and accessible capital market through digitalisation, DBS launched FIX Marketplace in June 2021, marking Asia's first fully digital and automated fixed income execution platform, where issuers can directly connect with investors on a single platform. And good traction was achieved on FIX Marketplace with a total of 20 issuances amounting to S$4 billion completed on the platform by end- 2021.

Singapore's edge as a financial hub is also entrenched by 2 more supporting factors. The first factor - its 3 derivatives exchanges offering multi-asset class risk management products - makes it a major derivatives trading hub in Asia. Secondly, it is the third largest FX centre globally and the largest in Asia-Pacific, with an average daily reported turnover of US$794 billion in October 2021.

All of this underpins Singapore's importance in Asia's financial markets. It also highlights the city's potential in influencing the digital future of the region and enhances Singapore's attractiveness as a test bed for emerging technologies.

Emerging technologies reshaping financial markets

In my view, 4 key technology trends are set to transform the future of financial markets: cloud technology; 5G; quantum computing; and artificial intelligence (AI)/machine learning.

Such changes have already taken place, albeit at different stage of maturity. For instance, today's trading floor looks vastly different from before - cloud technology means traders can access unlimited computing power and storage space whenever they need it, no longer burdened by the high initial investment and troublesome maintenance of physical servers.

The power of 5G offers a glimpse of the future in allowing customers to transact anywhere, possibly with just a nod or video/voice commands to execute trades in real time. Trading is set to be revolutionised again as the technology evolves.

The potential use of quantum computing for trading and simulations means that trading counters can take millions of pricing enquiries every second - a big leap from the capabilities of today, given that current supercomputers may not be able to detect market arbitrage or grant select market participants information advantages.

With regard to AI and machine learning, the former is a technology that enables a machine to simulate human behaviour, and the latter, a subset of AI which allows a machine to automatically learn from past data. Through machine learning, we can leverage agility, self-adaptive and cognitive strategies in the assessment and hedging of market risk, and the prediction and quantification of emerging opportunities. DBS harnesses AI, supplemented by Big Data and advanced computing power, to create a sustainable competitive advantage in market prediction, pricing and portfolio selection - all of which are greatly beneficial for our customers.

Many of these recent developments have been facilitated by our bank's transformation journey over the past 8 to 9 years, which included giving data scientists, quant traders and analysts more seats in the dealing room. And this has yielded several successes.

For instance, DBS's proprietary quant pricing engine (QPE) enables real-time pricing for our customers today. Coupled with in-house trading systems, we have harvested the power of cloud technology to dramatically improve our customers' price discovery journey and enable our traders to better manage their market risk.

Across the region, landmark tech evolutions have also been taking centre stage. In China, the People's Bank of China was the first major central bank in the world to launch a digital currency, while Indonesia has been developing a regulatory framework to support the digital financial sector ecosystem. Likewise, India's finance sector has seen further digitalisation of its stock market enabled by advanced data science and AI tools.

But even as regional markets continue to make headway, Singapore remains well-positioned to be one of the trailblazers leading the digital transformation of Asia's financial markets.

Apart from its world-class digital infrastructure, the Singapore government has been supportive of the financial sector's digitalisation efforts. Notably, one of the key pillars of the Singapore Smart Nation initiative is the digital economy, and a "Smart Financial Centre" is an integral part of the city-state's ambition to become a Smart Nation.

This, I believe, will provide the robust foundation needed for Singapore to achieve its digital ambitions and stand out from its regional peers as a leading digital and financial hub in the years to come.

The writer is group head of trading at DBS Bank.