The trading arms race is going global. 

High-frequency trading (high-frequency trading news) remains a fixture in the headlines these days, and regulators in the U.S. and Europe are pondering what should be done. But it appears that the march of high-frequency trading to overseas markets will not be stopped anytime soon. A recent poll by Thomson Reuters found that 54 percent of buy-side and sell-side respondents point to the United States as the country offering the most potential--not surprising--but 24 percent said emerging markets was now their top choice, a decent showing. 

This stems in part from the desire of more overseas exchanges to cash in on the movement. The Singapore Exchange, operator of the city's derivatives and stock exchange, has announced its so-called Reach initiative, which will launch what the firm bills as the world's fastest trading system by the first quarter of next year. The $250 million investment in the new system will allow the exchange to execute trades in 90 microseconds compared with 3 to 5 milliseconds now. High-frequency trading already accounts for 30 percent of volume on the exchange, but it hopes that will go even higher. 

In addition, Hong Kong Exchanges & Clearing  said last month that it, too, will upgrade its trading system next year to boost speed, aiming for order flow from the mainland. It's goal: a trading system by the end of 2011 that can process 15,000 transactions per second, up from 3,000 transactions per second, according to Bloomberg. ASX, of Australia, and the Tokyo Stock Exchange also have upgrade plans. So we have a full-on arms race underway, which will draw attention from U.S. firms. 

A related development is the rise of dark pools in Asia. These execution venues have not made the in-roads in Asia that they've made in the U.S. and in Europe. Chi-X Japan is said to be aiming to offer services in Tokyo by July. Nomura launched a dark pool in Japan last year, and introduced a similar venue in Hong Kong just last month. 

So what we may be seeing is the rise of a technology-driven trading structure that blends U.S. and European systems. All these firms are aware that a unique opportunity may be in the works. If the regulators really clamp down on high-frequency-style trading in the U.S. and Europe, Asia will welcome them with open arms. That makes some sense. But you can bet that the open arms will close a bit once a Flash Crash roils the region. Recall the rhetoric politicians there have lobbed against hedge funds. It would behoove the exchanges, third-parties and regulators to think about all of this now. - Jim