Tag: Meraki Global Advisors

Vietnam will remove a requirement for overseas investors to fully pre-fund equity transactions, adding to the country’s efforts to increase its chances of a FTSE and MSCI market classification upgrade to emerging market status. The regulatory change, effective Nov. 2, 2024, should resolve a long-standing barrier that has prevented the nation from being upgraded from its current frontier market status by both FTSE and MSCI. The current 100% prefunding requirement for overseas investors has hindered large funds from fully investing in the Vietnam market.

Under the announced change, local brokerage firms will assess the risk and determine any pre-funding ratio requirements for their foreign institutional investor clients when placing orders. Regardless, client accounts must be funded by 9:30am on T+2 to complete normal trade settlement. If an overseas investor fails to complete the payment, the liability will be assumed by the broker.

“We think the changes would enable FTSE to upgrade Vietnam to Emerging markets within the next 12 months, leading to more than $500mm of passive inflows into the market and potential positive revision from MSCI,” J.P. Morgan Market Research said in a note.

Even with the removal of the pre-funding hurdle, most publicly traded Vietnamese companies are still subject to foreign ownership limitations (FOL). For example, the combined stake of foreign investors in any listed bank is limited to 30% and 49% for securities listed in the real estate, oil & gas, and construction materials sectors. When a listed Vietnamese company has “reached its FOL limit” (i.e., the proportion of shares available to foreign investors have all been acquired by foreigners), and a foreigner wants to buy more shares in the company, the purchaser must buy shares from a foreigner that already holds them. The foreigner that holds these shares typically demands a premium above the prevailing market price when selling their shares, triggering a mark-to-market loss for the new investor.

Sourcing liquidity presents different challenges in Asia than in the US and Europe, with Vietnam currently trading around USD$800mm on average per day across the entire listed market. On-the-ground and live trading experience is essential when navigating difficult liquidity landscapes. Firms investing in Vietnam should ensure their trading desk is well-versed in the idiosyncrasies of the Vietnam market while maintaining relationships with local and foreign brokers to benefit from color on discreet blocks available, as well as impactful news and flows. These lines of communication carry significant value to market participants. Additionally, traders must pay special consideration to information sharing. Careful management of order flow is important in all markets, especially in Asian emerging markets where governance and event risk can be significantly more common and corrosive, driving intraday volatility.

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development
(646) 666-7041
mm@mga-us.com

In early February 2024, in a landmark development, Australia has ushered in a new era of workplace rights with the passage of the Fair Work Legislation Amendment (Right to Disconnect) Bill. The effect date is six month from the date the Act receives royal assent. This legislation grants employees the authority to disregard unwarranted communications from their employers outside their regular working hours, with significant ramifications for non-compliance, including financial penalties and potential legal consequences.

The impetus behind this bill, spearheaded by the Fair Work Legislation Amendment, is to afford Australian workers the right to refrain from monitoring, reading, or responding to employer communication beyond the confines of their prescribed work hours. This statutory provision serves as a wall against employer overreach and seeks to rectify instances of labor exploitation, wherein employers might seek to extract additional work from their employees without commensurate compensation.

However, it’s important to note that exceptions exist for situations deemed genuine emergencies, where prompt communication may be needed. The overarching objective remains the protection of employees’ personal time and well-being from undue encroachment by employers.

The enactment of the Australian Fair Work Amendment (Right to Disconnect) Bill 2023 is poised to reshape and shake-up operational practices, particularly with Australian Asset managers. With Australian Superannuation Funds international asset allocations edging near 50%¹, fund managers are now more reliant than ever on after-hours communications with their internal trading desks. Now, they may find their ability to contact in-house trading teams curtailed. There are several potential drawbacks for Australian Asset Managers:

• Missed Opportunities: Financial markets operate globally, are highly correlated, and subject to constant fluctuations. Without the ability to instantly communicate with trading teams after hours, asset managers may miss out on valuable opportunities to capitalize on market movements or address emerging risks.
• Reduced Flexibility: In dynamic market conditions, particularly during times of turmoil and volatility, flexibility is crucial for effective decision-making and risk management. Limiting communication after-hours could impede asset managers’ ability to adapt quickly to changing market conditions.
• Competitive Disadvantage: In a highly competitive industry, asset managers unable to establish an effective in-house trading desk with traders available 24×6 may lose clients to competitors. Competitors ahead of the curve that have addressed these inefficiencies and reduced drag on fund performance from implicit costs generated by maintaining sub-optimal trading operations, estimated on average to impact fund performance by 1.2 – 2.7% p.a..²

Overall, restriction on after-hours communication with trading teams could impede asset managers’ ability to operate efficiently, stay competitive, and meet client expectations. However, outsourced trading firms with traders situated beyond Australian borders, like Meraki Global Advisors, which operates locations in Park City, UT, and Hong Kong, could provide a solution by offering seamless, round-the-clock trading services while adhering to the legal and regulatory framework.

Meraki Global Advisors operates in multiple time zones, allowing them to provide trading services during Australian after-hours when the local market is closed. This enables Australian asset managers to access global markets efficiently outside regular trading hours. With the option to outsource trading services, Australian asset managers gain flexibility in managing their operations. They can leverage the expertise and resources of their outsourced partner to handle trading activities beyond regular working hours, enabling them to focus on other strategic aspects of their business.

Meraki Global Advisors eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. Their trading services also offer cost advantages compared to maintaining an in-house trading team for after-hours, allowing the asset manager to pass through these trading services costs no differently than the multi-manager platforms have been, while simultaneously leveling up the experience and pedigree of their trading team. This cost efficiency becomes more appealing as Australian asset managers seek to optimize operations while adhering to new regulations. By spreading their trading activities across different jurisdictions, they can mitigate the risk of disruptions caused by local regulations or market events impacting a single location.

1. NAB Super Insights Report 2023 ↩︎
2. Quinlan & Associates Trading Up Report 2021 ↩︎

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development
(646) 666-7041
mm@mga-us.com

The South Korean Financial Services Commission (FSC) announced Sunday, November 5, that they will impose a temporary short-sell ban on both KOSPI 200 and KOSDAQ 150 stocks effective November 6th until end of June 2024.

The FSC enacted the short-selling ban in order to review the current short-selling system. According to the FSC, institutions are engaged in naked short-selling, which is disallowed due to current Korean regulation. Regulators believe it leads to an unfair environment for market participants.

The ban’s objective is to give the regulator an opportunity to implement a real-time position check system that can monitor naked short-selling. Short sell bans are not new in South Korea: this is the fourth ban since 2008-2009, with the most recent one occurring in 2020-2021. The first comments regarding a possible ban came on the October 27th by ruling party member Mr. Yoon Chang-Hyun who said, “the time has come to stop short-selling altogether for three to six months and devise fundamental measures.” Following that, FSC head Mr . Kim Joo-Hyun said they will review current short-sell regulations from “square one,” according to Business Korea and other local news sources. The full-scale ban, though, seems to have caught most investors off guard.

Government Communication

The market initially interpreted the above comments to mean a ban was likely imminent, eventually leading the FSC to make a public statement refuting a potential short-sell ban, highlighting on their official FSC website on October 30th, “the push to ban short-selling is not true, so please be cautious in your reporting.” Then on November 3rd the FSC made a second statement specifically denying regulators would enact a short-sell ban.

On Sunday November 5th the South Korea government abruptly changed their view and decided to enforce the ban. This raised questions over the government’s political motives with elections expected in April.

The previous bans have all led to positive market performance: during the 2008 short-selling ban (Oct 2008-May 2009), the Kospi and Kosdaq were up 49% and 91% from their respective bottoms until the ban was lifted. In 2020 (Mar. 2020- Apr. 2021), the Kospi and Kosdaq were up 112% and 122% during the ban. Furthermore, the 2011 short-selling ban was only three months starting from August 10, 2011, but the Kospi and Kosdaq were up 6% and 18% during that period.

In addition, Korean regulators announced November 16 their intention to further restrict short selling rules for institutions, while bringing retail restrictions inline with institutions. The FSC will lower retail collateral requirements from 120% to 105%, while also capping the maximum borrow time on a stock to 90 days for short selling purposes for institutions. These proposals will need to be ratified via the legislative process before being implemented, according to the FSC.

The overall short-selling changes may jeopardize South Korea’s ongoing goal, as ambitious at it may seem, to gain MSCI admission into developed market status.

How can Meraki Help?

Asian Coverage from Hong Kong for Global Managers is One of Our Major Specialities

Korea made this announcement early Sunday in the US and Europe, surprising global investors with the announcement and the timing. Given the Sunday announcement, local time, the timing further complicated the ability to trade objectively and effectively on the Monday morning when Korea opened without a live Asian trading desk.

Risk-driven events like this are inherently difficult to manage and this particular event generated 2-sigma intraday volatility within the markets, while the EV Battery makers collectively moved +23% on the day and single stocks like Ecopro (247540 KS) and Posco FM (003670 KS) reached limit up +30% before the close.

About Meraki Hong Kong

Our local Hong Kong office employs a full trading team available and experienced in all APAC markets. Our traders have worked locally in both Hong Kong and India and collectively have decades of experience in the region and understand the nuances of the Asian markets. Cognizant of information leakage and protecting client orders, our 3:1 client to trader ratio, as well as Meraki’s neutral, unbiased trading structure, allows Meraki to be completely aligned with its clients’ trading objectives. Please call us to provide more market colour and strategic insights.

We remain, sincerely yours, the trading team, Meraki Hong Kong.

Outsourced trading firms capitalize on demand for an alternative solution to in-house trading desks. What began as a niche business is now a more crowded field attracting a growing number of players with various operating models, fueled by the asset management industry ’s constant quest to create efficiencies. In such an environment – as in any competitive service industry – each outsourced trading provider ’s value proposition becomes increasingly critical. As asset managers re-examine their business models and investment strategies in this complex environment, they do well to ask the key question: What level of service and firm structure will deliver optimal value for our firm and investors?

In outsourced trading, a provider ’s chosen operating structure heavily impacts its value proposition. Here we look at two different outsourced trading models and explore their respective value propositions. We close by sharing our views on the future of outsourced trading.

Agency broker model: an asset manager’s favorite sales-trading desk 

The agency broker ’s outsourced trading offering is indistinguishable from the traditional sales-trading model of introducing broker-dealers. The agency broker maintains the relationships with the sell side and creates a hub and spoke network for its outsourced trading clients – the model’s key value proposition. Clients benefit from access to a wider broker network without the need to onboard with any sell-side brokers directly. Under this model, smaller managers are provided access to resources they may not ordinarily be entitled to, albeit likely at the expense of larger clients. 

The agency broker model delivers a broad broker network for liquidity access, but other structural characteristics of this model can arguably subvert value for clients, or, at the very least, diminish the overall value proposition:

• High client-to-trader ratio – Executives at agency broker-dealers often position their firms for profitability by having traders cover many clients, typically 20 or more. It is no secret that high client-to-trader ratios detract from the quality of coverage. Managers – especially as new clients – must question where their fund will land within the coverage trader ’s priorities. When significant market events and dislocations occur, trading volumes spike and trader capacity decreases markedly, resulting in execution control issues and response delays. Traders cannot guarantee they will prioritize orders chronologically, let alone give assurance they will be in a strong position to help managers navigate the event and achieve the best possible outcomes. Lastly, high client-to-trader ratios curtail a trader ’s capacity to genuinely understand and cope with an asset manager’s requirements and fully integrate with its investment team.

• Non-directed order flow – In a traditional agency broker model, the outsourced desk can trade with a limitless number of broker dealers, alternative trading systems or exchanges. Clients considering this model should be keenly aware that the majority of sell-side firms are unable to credit them with commission attribution when the outsourced trade faces the street, resulting in a loss of valuable firepower with page 1 their PBs and preferred brokers. A top selling point for the firms offering this model is their large broker network, advertising it leads to greater liquidity access. However, SEC 606 reports filed by agency brokers reveal that, on average, greater than 50% of non-directed orders received from clients are executed through venues where it appears to be financially beneficial. In other words, the majority of non-directed order flow is either internalized, executed with clearing brokers to meet minimum revenue requirements, or, worse, routed to PFOF firms.

Authorized trader model: an unconflicted extension of an asset manager

In this model, outsourced trading providers trade solely with the asset manager ’s execution counterparties as their authorized agent (trader). This model truly embraces the ethos of what an outsourced trading firm should do: operate as an unconflicted extension of the asset manager and its investment team—a quality that represents the model’s core value proposition. 

The structural characteristics of the authorized trader model further clarify its value proposition: 

• Low client-to-trader ratio – Because of the intricacies involved, the authorized trader model simply does not allow for one trader to cover more than a handful of clients effectively. In this model, the outsourced provider is positioned to deliver bespoke, high touch, white glove service whereby the trader adds value as if he or she were the client ’s internal trader.

• Clients maintain direct relationships with their executing brokers – The fund name remains the focal point for resource providers. There is no intermediation of a fund’s relationship with its brokers and resource partners: All trades are booked directly into the fund’s account and all commissions and/or spreads paid to the sell-side are from the fund. For risk management and resource tracking purposes, the sell side increasingly prefers to know exactly who the end client is. Maintaining this direct relationship under the authorized trader model is the only way asset managers can be confident they will be able to access the full suite of sell-side services, including ECM access, research, block trades, and analytical tools.

Looking Ahead

At Meraki Global Advisors, we believe the future of outsourced trading is bright, particularly for providers delivering value through an authorized trader model. This belief drove us to pioneer the pure buy-side model. Our clients have witnessed firsthand that the most productive level of service is achieved when outsourced traders become deeply familiar with their portfolios and operate within a true partnership model. Furthermore, the value derived from conflict-free trade executions directly with a client ’s counterparties is significant and unmatched. 

That said, we recognize asset managers are not homogenous; where one finds value, others may not. Some may not have the operational capacity to set up their own broker network and others may not require street resources, focusing instead on the low-execution costs. Perhaps a manager has just left a large established firm to launch a new fund – he or she may choose an agency broker to keep costs low while building a track record. 

Other managers require comprehensive services and experienced traders to meet their complex and/or global trading needs. For these managers, a bespoke offering capable of trading every market and all asset classes will deliver the most compelling value proposition. As a new fund gains traction, the manager can now focus on establishing a distinguished identity with the street. The manager may also be focused on capturing the competitive advantages created by an expert trader entrenched in the fund’s investment processes, such as identifying and/or hedging key portfolio factors. Authorized traders with visibility into a manager ’s investment process can also monitor the alpha and beta contributions to portfolio names to establish a sense for crowding. This assessment can be an invaluable tool, specifically for sizing positions correctly around uncertain catalysts. These are just two of the many differentiated services Meraki delivers to clients on a daily basis. 

As asset managers evaluate a growing field of outsourced trading providers, they would be well served by establishing a clear understanding of the value propositions on offer for optimal value. 

About Meraki Global Advisors

Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development
(646) 666-7041