See Presentation (.ppt) as presented on October 18th, 2007 in Shanghai to China’s financial information vendor and user community. Trend and Solutions in of the growing market data volum. An event jointly organized between SSE Infonet (Shanghai Stock Exchange) and FISD
Source: 18.10.2007 FiNETIK, Stephan Stadelmann
Although its climate is hotter, its industries more diverse and its market smaller, in some respects the Colombia Stock Exchange looks like any U.S. or European exchange. It grapples with the same technology issues — such as how to get data latency below a few milliseconds and how to build an IT infrastructure that can easily scale and withstand market volatility and surges - that plague any exchange or firm with a large trading floor.
The Colombia Stock Exchange (Bolsa de Valores de Colombia is its real name) was formed in 2001 out of three existing exchanges based in Cali, Bogota and Medellin. It is the country’s only exchange for equities and fixed income. Its main business lies in fixed income, mostly public debt, and the equities of its 100 listed companies of which 26 trade actively. “We’re making a lot of effort to increase the listings to drive future demand,” notes Jitendra Puri, vice president of IT. During busy times the exchange handles 6,000 - 7,000 equity trades and 8,000 - 9,000 fixed income trades daily. “However, we’re experiencing decline in volumes traded due to both global and local market conditions. ” Puri says.
But overall the exchange is growing — in fact, between 2005 and 2006, the Colombia stock market was one of the fastest growing worldwide, at about 110%. “It’s not that high now, but we think with all the effort going on with the macroeconomic environment in Colombia and with regulation, this market is set to grow,” Puri says. “We’ll never be as large as Brazil or Mexico, but we could be the third largest exchange in Latin America, I think. We’re pitching for that, and that is one of the reasons we embarked on phased technological transformation projects at the exchange.”
Part of the transformation is the implementation of a state-of-the-art multi-class trading platform from OMX that initially will handle derivatives and equities. The exchange hopes to launch a derivatives market by mid-2008. It’s made an alliance with a European exchange, MEFF, to create the first clearing house for the derivatives market in Colombia.
To handle all the integration efforts needed for these projects, the Colombia Stock Exchange chose a messaging bus and other tools to build a services-oriented architecture from Tibco.
Lowering data latency is a priority for this project. “The risk for latency at an exchange like ours is unmatched,” Puri notes. “Only exchanges know what latency really means – a few milliseconds is a lot of delay for us.” The Tibco software, which will be used for order routing, should help lower data latency as well as provide scalable and consistent quality of integration services as trade volumes increase.
The exchange uses a large suite of backoffice applications that are staying in place for now because “we can’t make 100 changes at the same time,” Puri explains. In the first phase of the project, the new applications are being integrated via the Tibco tools and from the messaging bus adaptors will be built to connect to the legacy applications.
By December, Puri says, Phase 1 will be completed and members will be able to send trades over the internet directly through the Colombia Stock Exchange’s platform. The second phase of the project, integration with the new OMX trading platform and the clearing house, is due to be done in June. Sometime after that the exchange will put in place Tibco’s Business Activity Monitoring dashboard.
Later, the exchange plans to build corporate and customer portals, also using the Tibco software. The entire SOA project should take about three years, Puri says.
Where’s the return on investment for this project? “There are two ways of looking at a project like this - one is by the book, where you do an ROI calculation, and the other way is you believe in it and you do it because you know it’s going to work,” Puri says. “We did it the second way. But before you begin you have to have a clear idea where you’re going, build your SOA strategy first, identify what business processes need to be streamlined, what can be reutilized, how you can leverage applications to support processes which are otherwise locked in silos, and come up with a SOA picture.”
He describes his vision: “Why are we spending all this effort to use a world-class multi-asset trading platform? Because we want to take the exchange to levels of international trading standards in order to open our market to international investors so they can access more easily our market and have program trading connections directly with our platform. What we’re doing we don’t need for today or tomorrow, we’re preparing for the future.”
Source: Wallstreet & Technology : Blog by Penny Crosman 01. 11. 2007
By Stephan Stadelmann, Managing Director, FINETIK
Published in AsiaMarketsIT.com in Your Say At 01 Sep 2007 15:49:37
Ho Chi Minh Stock Exchange (HOSE) is the new name of HoSTC (Ho Chi Minh Securities Trading Centre), as of August 8 2007. And it is not only the name that has changed. Following the transformation, HOSE is considering plans for its equitisation, and at the same time plans to sell shares to foreign investors.
Continuous Trading, at Last
Also with the transformation comes a flurry of tighter rules and finally the long-postponed introduction of continuous trading. That said, it will be limited to one session, between two end-of-session matching sessions, in contrast to HaSTC (Hanoi Securities Trading Centre), which has been trading continuous matching for a while.
The several previous attempts to introduce continuous matching sessions were not successful because many of the securities brokers were technologically not ready to deal with continuous matching. This inhibitor seems at least partly to have been resolved.
At the same there has been a flood of applications for securities brokerage licences, and if all should be approved by early to mid-next year there would be around 150 securities house in the market (up from about 50 currently), fighting for a piece of the US$30-100 million daily trading volume.
Where as in the US and Europe low latency is the hot topic currently, with companies offering services and products to support financial institutions battling for milliseconds per transaction, in Vietnam brokers still have to shuffle papers before they manually enter trades on the trading floor. At times this means they are missing orders due to time constraints, and they are also inhibited by just the human limit on numbers of orders that can be entered. As a result what can’t be done today will be done tomorrow and investors are kept waiting.
Setting the Scene for a Technology Arms Race
To ensure that HOSE (and HaSTC) can grow and expand in trading volume and system development (Vietnam’s exchanges are expected to capitalise 50 per cent of the country’s GDP by 2010), it has extended its membership qualification to include technological, customer service and other requirements.
This has sparked a technology arms race among the leading securities houses and the new ones, which are dead serious about snatching away a part of the market share of the top five brokers that control around 90 per cent of the 250,000 trading accounts.
Add to this the fact that currently there are only eight empty desks available on the HOSE trading floor, which translates into 24 broker seats. Normally a new broker gets two seats, so there is only room for 12 more firms to join. The number of firms that have been granted in-principal new licences is already much higher than that and many more are still waiting for approval.
HOSE has however confirmed that in early 2008 the trading floor will become obsolete and securities houses will have their trading stations connected directly to the bourse trading systems. That is, for those that are ready.
By Stephan Stadelmann, Managing Director, FINETIK
Published in AsiaMarketsIT.com, on 01 May 2007 10:37:01
Back in 2005, I attended the first FIX Conference held in Shanghai. Although great numbers of local attendees showed up curious to learn about FIX, most local participants did not see much benefit in FIX for China.
Regardless of the bureaucrats’ strive to carefully loosen the tight network of regulations, China’s markets hit record lows and a fiercely competitive battle between securities houses squeezed margins. Little or no money was left to invest, making it an environment of bare survival. This was the situation less than two years ago despite the hype in the foreign press about China, which continued through all this time.
Despite this turbulence below the surface, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the China Securities Regulatory Commission (CSRC) understood the importance of FIX, and bought into the vision that a unified, standardised exchange trading protocol and interface would simplify infrastructure for market participants and exchanges in the long run. They also appreciated such unification would drive down IT expenditure, including support and maintenance, for the diverse market participants in China’s vast financial market, and prepare them for foreign competition.
In March 2003, the SSE and SZSE started to jointly develop a Chinese version of the FIX protocol called Standardized Trading Exchange Protocol (STEP), and in November 2003, CSRC set up the STEP Sub Committee, with founding members CSRC, SSE, SZSE, Shanghai Futures Exchange (SHFE), HuaXia Securities, GuoXin Securities and TaiYang Securities. The committee was given the task of building a standardised protocol, considering first and foremost the needs of the Chinese markets. In 2005, SSE joined the global FIX Protocol Limited (FPL) organisation and in 2006 FPL’s subcommittees for exchanges and ECNs.
Today, the STEP protocol is being implemented, based on FIX 4.4 with some minimal exchange specific variations in the SSE and SZSE versions. In other words FIX.
SSE tested its STEP engine as early as 2006 and will be deploying the engine to its market participants as part of the New Generation Trading System (NGTS), which will be operational later this year. SZSE will follow shortly, and both exchanges will be ready by the end of 2007.
However not all members will be ready or are willing to embrace STEP from the beginning. Large brokers and asset managers and those with foreign involvement will be the first to accept the new protocol. Smaller brokers and those in the process of restructuring are hesitant to accept and deploy STEP.
Concerns remain among some of China’s market participants about STEP, specifically with regard to performance in handling order volume, reliability and local support. So NGTS will provide direct market access (DMA) in parallel through two protocols, one being STEP and the other being the SSE’s current proprietary exchange protocol.
As a logical consequence, market data will follow, in FIX compatible format, once NGTS has been released into production.
All of this will happen – in the best case scenario – in time to coincide with Qualified Foreign Institutional Investors (QFIIs) successfully pushing China to allow DMA from overseas.
Rumour has it that a few of the QFIIs are already preparing for DMA into the Chinese markets, which represents no technical issues, but has not legally been deregulated. For Chinese domestic brokers and asset managers (regulated differently from foreign QFIIs) DMA is legally possible. However, SSE’s exchange members are required to separate reports to regulators for domestic and foreign order flow and hence QFII orders need to stop at the local executing brokers’ desks.
The writing is on the wall!
It used to be said that when US markets sneeze, Asian and European markets will get the flu. However, this might change. The sharp drop in China’s markets in February could be a portent: for the first time in decades, US markets suffered a drop caused by another country’s exchange, and not vice versa. We might have passed a historical turning point, and China’s exchanges seem to be preparing to take on the challenge.
By Stephan Stadelmann, Managing Director, FINETIK
Published in AsiaMarketsIT.com on 01 Apr 2007 12:35:53
The Asian Century
During the past decade, Asia has fallen periodically in and out of favour with investors globally. Excitement has been followed by caution, which has been followed by excitement once again. Today’s focus on Asia, which owes much credit to the rise of the Chinese and Indian markets, shows signs of becoming a stable period of global investment into Asia. It is no coincidence that some analysts have called this the “Asia Century”. Against this backdrop, the exchanges in the Asia-Pacific region have lagged behind their US and European competitors (with perhaps the exception of the Australian Stock Exchange (ASX)).
However, with hindsight, this could turn out for the better for Asia’s exchanges, as it gives them ample opportunity to study the ingredients of past successes and failures. Governments in Asia are much more involved in the business of exchanges than in Western countries, and the process of deciding on change, and how to execute such change, can be cumbersome, and might follow paths that are not always obvious to the observer, or to external firms that decide to pitch for any business with Asian exchanges. However, once Asian exchanges have decided to make change, they tend to be genuinely determined to carry it through.
Challenges and Opportunities
The challenges and opportunities facing the exchanges and their market participants in what is the fastest growing part of the world are substantial.
Let’s look at China, where 2.5 million new investor accounts were added to the Shanghai Stock Exchange (SSE) in 2006 alone, making a total of 41 million accounts. The Shanghai and Shenzhen Stock Exchange exceeded a combined 80 million registered accounts in Q1 2007, and there is no slowdown in sight. SSE’s existing trading system is scheduled to be replaced in Q3 2007 with new generation trading systems designed to accommodate at least 80 million accounts, 20,000 order matches per second and a scalable minimum of 63 million executions a day. The new systems will cater for multiple asset classes such as cash equities, funds, warrants, bonds and financial and commodity derivatives.
Another much talked-about market is Vietnam’s HoSTC (Ho Chi Min Securities Trading Centre). HoSTC is at a very different crossroads on its path to growth and deregulation from that of the SSE, but there are similarities. HoSTC is also doubling its number of trading accounts, and the pilgrimage of foreign institutional and retail investors into Vietnam is ongoing. The demand for investing into the exchange manifests itself in some very peculiar forms: for example, travel agents in Japan sell tour packages to Vietnam that offer tourists the opportunity to open “a trading account (on HoSTC) after your tour of the Museum of American War”. Such tactics aside, the order placement, matching and trade execution processes on HoSTC are still extremely laborious and manual today. By May 2007, continuous trading will be introduced, and by mid-2008 a new trading system with electronic direct market access (DMA) is scheduled to be in place.
From a technology perspective, the global FIX protocol standard has been accepted by stock exchanges in the Asia-Pacific region. However, though interest is on the rise, adoption in practice is slow. Exceptions to this are ASX, leading the way in Asia (using FIX for trading and market data), followed by the Singapore Stock Exchange (SGX). Bursa Malaysia (BM) and the Stock Exchange of Thailand (SET) are following, by launching FIX connections to their trading terminals. China’s Shanghai and Shenzhen Stock Exchanges are leveraging the concept of the FIX protocol, albeit in a modified form: they are using what they term STEP, Securities Trading Exchange Protocol, for their internal benefit.
Legacy System Replacement
There is a need for most if not all exchanges in Asia to replace their current legacy systems. This requirement is being driven by the demands of inflowing investments that compel the exchanges to cope with high volume growth and demand for DMA. While foreign market players are the driving force, domestic participants are increasingly starting to engage in DMA, and domestic trading volumes are also on the rise. Asia’s exchanges are also under pressure to extend their product ranges for foreign investors. This, coupled with the need to increase trading capacity, further confirms the trend to replace legacy systems. The Asia-Pacific region is an increasingly competitive environment in which markets are fighting for an increased share of incoming investments, and one highly visible marketing strategy is to publicise plans to replace and upgrade legacy exchange systems. This may, to some extent, explain why some of the more conservative exchanges seem to be executing such replacement projects half- heartedly in the eyes of foreign market participants and the international software firms that are trying to win these exchanges’ lucrative and prestigious technology replacement projects.
Asia endeavours to be self-sufficient. As a result, its exchanges believe there are opportunities to promote and sell their own trading technologies to other exchanges within the region. For example, SET, BM and Korean Stock Exchange (KRX) are becoming de facto technology vendors to emerging markets like Vietnam. At the opposite end of the spectrum, FT India, a trading systems technology provider, has emerged as a dominant exchange in India with MCX (Multi Commodity Exchange), and owns part of DGCX (Dubai Gold & Commodity Exchange). FT India is currently expanding its activities through active involvement with other exchanges in the region, providing consulting and trading systems.
Market Data
On the market data side, the SSE Infonet business of the Shanghai Stock Exchange launched in Q2 2006 a new level 2 market data feed with a new stringent business model for the exchange data industry. The Hong Kong Exchange (HKEx) and SSE Infonet have now agreed to distribute each others’ market data feeds for cross-listed and specifically selected stocks. Similarly, the Tokyo Stock Exchange and the New York Stock Exchange have agreed to a cross-continental distribution of some of their data.
Another hot topic within the Asian exchange industry is the merging of separate exchanges for cash products, financial derivatives and commodities derivatives, with all the implications of such moves for products and technology.
Last but not least, the expectation of cross-country exchange mergers and alliances has been fuelled by a recent flurry of (often vague) memoranda of understanding between several exchanges in Asia and European and US exchanges wishing to create a presence in Asia.
The activities among Asia’s exchanges in 2006 and early 2007 are only the tip of the iceberg. Stay tuned…
Stephan Stadelmann is the founding partner and managing director of FINETIK Partners.
www.finetik.com
