Trading Volume

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Direct Market Access System in Taiwan

Pony Bo-Li Huang Taiwan Stock Exchange
Corporation Nov 12, 2007
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Outline

1. The TSEC DMA System
2. DMA Regulatory Issues
3. Algorithmic Trading Issues

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The TSEC DMA System
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TSEC DMA System
Leased-line or closed private network
Investor
Securities Firm
Exchange
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Current Status of Taiwan DMA Market

• TSEC DMA system, launched in June 2006
• Market Conditions
• 26 approved DMA securities firms.
• 1,688 approved DMA users.
• the DMA trading value accounts for
• 0.71 of our total market transactions.
• (as of 2007/10 )

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DMA Participants Analysis
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DMAs Monthly Trading Amount and its Market Share
Thousand NT
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Comparison of Electronic Trading Methods in Taiwan
Safety Speed Accessibility of total market transactions (2007/9)
DMA ? ? ? 0.49
Voice Mail ? ? ? 2.57
Internet ? ? ? 18.42
? Best ? Good ? Average
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Participants Roles In DMA

• Investors
• place orders through DMA according to their
  personal trading requirement
• Securities Firms
• submit the application to the Exchange and
  provide DMA to its investors.
• verify the clients orders and fulfill the
  obligation to settle.
• report the DMA transactions to TSEC

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Participants Roles In DMA (cont.)

• Sponsored Access Persons (SAPs)
• those who provide closed network service
• TSEC
• verify the brokers DMA applications
• provide DMA regulations
• audit the brokers on DMAs risk control and
  transaction safety

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DMA Regulatory Issues
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Requirements for Securities Firms to Conduct DMA
Business

• Framework and flowchart of transmission
  information.
• Reasonable evaluation of control mechanism
  (Including authentication, data integrity, data
  confidentiality and non-repudiation of trading).
• Amend internal control audit rules

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Trading regulations and data transmition
obligation for a DMA Securities Firm

• Submit investors account data to TSEC
• before the first trade.
• Transmit the order numbers after the
• transactions
• Set up a filter function

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DMA Trading Access Point

• In Taiwan electronic signature for verification
  is required.
• Outside of Taiwan no electronic signature
• requirement but abide their own local laws and
  regulations.

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Risk Control Mechanism

• TSEC No additional risk management system for
  DMA transactions.
• TSEC reserves the right to temporarily stop,
  limit or suspend the DMA orders from securities
  firms.
• Securities Firms Implement credit and risk
  management to clients.
• Inter-market Alert Mechanism.

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3. Algorithmic Trading Issues
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The status of algorithmic trading in Taiwan
markets

• There is insufficient statistics to show the
  importance of the algorithmic trading in Taiwan
  market.

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Some possible IT mechanisms that can be taken to
achieve better latency time in Taiwan

• Cancel the mandatory requirement of electronic
  signature for DMA trading.
• Adopting the trading continuous execution
  mechanism rather than call auction.
• Investors directly place order with TSEC, without
  the intermediary of securities firms.

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Measures have been taken with regard to market
data dissemination

• Trading Halt.
• Matching order once every 25 seconds.
• A Broker cannot place next order until it has
  received the confirmation from TSEC.
• Should there be any problem happened to any
  specific stock, the affected stock will be
  switched to single matching system and the
  brokers will be asked to transmit the orders
  through separate channels.

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Thank you
Pony Bo-Li HuangVice President of Trading
DepartmentTaiwan Stock Exchange CorporationTel
886-2-8101-3573E-mail pony_at_tse.com.tw