Established stock exchanges of the world have been forced to transform from an environment where there was little or no competition, due to high regulatory barriers of entry, to one of increasing competition and much lower entry requirements. Many established exchanges are also facing increased competition from alternative trading systems. What hasn’t changed is the stellar expectations of investors, now hungry to recoup any losses they suffered in the global financial crisis.
The widespread and growing adoption of electronic trading has accelerated the automation, efficient operations and regulation of exchanges. Researchers believe that markets are now more transparent as a result of electronic trading. The ‘playing field’ has become more level because there is equal access to information, such as the last traded price, current bid/ask, to all types of investors.
‘Robo trading’
Then there’s high-frequency algorithmic (automated) trading of derivates, sometimes known as ‘black box’ or ‘robo trading’, which involves the use of highly complex computer programs and is used widely by pension funds, mutual funds, and other buy side (investor driven) institutional traders.
This ‘robo trading’ has prompted Cable&Wireless Worldwide to build a global network to support the specialised and mission critical algorithmic trading and communication needs of the world’s largest investment banks and financial institutions.
In an announcement, Cable&Wireless Worldwide maintained that by using their International Ethernet Private Line (IEPL) solution, the network offers extremely high-speed, predictable and secure ethernet connections between global financial trading exchanges.
On the Singapore Stock Exchange (SGX) alone, algorithmic trading accounted for about 25 per cent of the derivatives volume in the first half of 2010, up from 15 per cent in the first half of the previous year.
As part of the SGX’s ‘Asian Gateway’ strategy, it now has the longest trading hours of any exchange in Asia, by extending derivative trading hours beyond the Asian time zone into European and US markets, remaining open until 1 am, Singapore time.
New platform
In August last year, market infrastructure technologies and trading venues provider Chi-X Global joined forces with the SGX to develop and launch the first exchange-backed non-displayed trading platform in Asia, starting with select securities listed in Australia, Hong Kong, Japan and Singapore.
Ned Phillips, most recently the CEO of BlocSec, an Asia-based crossing network, has been appointed as Chi-East CEO. Chi-East will act as an independent liquidity aggregator for the sell side and offer another execution in the form of a non-displayed venue that will expand the range of available solutions for conducting block transactions with price improvement.
Chi-Tech, the technology subsidiary of Chi-X Global, will provide the technology for the new trading platform.
As one of Asia’s first demutualised and integrated securities and derivatives exchanges, the SGX is listed on its own bourse.
Electronic poll voting
The SGX broke new ground in the Asian financial world by conducting electronic poll voting for all resolutions passed at its October 2009 annual general meeting.
Poll voting works on the principle of one-share-one-vote, as opposed to the prevailing practice of a “show of hands” or one-person-one-vote. The electronic element, which was done using a special hand-held device, allowed votes cast for, or against, each resolution to be tallied and disclosed to shareholders immediately.
SGX general counsel and company secretary, Joyce Fong, says: “Moving to a vote by poll allows shareholders to cast their votes in direct proportion to their shareholding. With an electronic system, votes are recorded instantly with the results being displayed live on-screen. This reinforces transparency in the voting process. Full poll voting is another milestone in the development of SGX’s corporate governance practices.”
From December 2009, the SGX has had a new CEO, Magnus Böker, who previously played a key role in the merger of OMX and Nasdaq in 2008.
“There is no doubt that Asia, and in particular Singapore and the SGX, will play a crucial role and have significant influence in shaping tomorrow’s global financial landscape,” Böker says.
The old adage that ‘time is money’ might have specifically been coined for the bourses of the world in this 21st century – who now look at the speed of their networks in terms of milliseconds and even microseconds.
Andrew F. Bach, senior vice president and global head of network services at NYSE Euronext, perhaps the world’s biggest and most influential exchange, put it this way, when discussing with MIS Asia (in a separate interview when he was recently in Singapore) about a major data centre consolidation: “A lot of our business is dependent on us having extremely high execution speeds,” says Bach. “That drives the need for fast, tight code to be run on our servers, as well as very low latency networks. All of them have to come together seamlessly into one environment. So we decided to go ahead with adding the criteria (into the data centre consolidation) that would give us ultra-low latency in the network.
“Many of the exchanges that we compete with, we compete ultimately on the basis of latency,” Bach says. “Whoever is the quickest wins certain customer order flow. It’s as simple as that. If we can be quicker, we’ll be better positioned to gain a larger market share.
“Right now, we have already seen gains on the latency front; the latency numbers? We dropped from network times in the order of a couple of milliseconds to 75 microseconds.”
Tokyo expansion
The world’s number two exchange, by the market value of shares of domestic-listed companies, is the Tokyo Stock Exchange (TSE), and it’s close behind New York in technological expansion.
In March, the TSE announced that it was using Red Hat Enterprise Linux as the standard operating platform for its next-generation ‘Arrowhead’ trading system. The global provider of open source solutions, along with its strategic partner, Fujitsu, helped TSE develop the Arrowhead platform which uses Intel-based servers.
Arrowhead aims to deliver a capacity, of orders accepted per second, 10 times larger than that of TSE’s previous trading platform. TSE has measured an order response time of two milliseconds and an information distribution time of three milliseconds.
Arrowhead, says the TSE, “offers the flexibility to accommodate new trading rules, the ability to be scaled with jumps in system demand and trading growth and expanded security and reliability”.
“With our new ‘arrowhead’ trading platform and its millisecond distribution speeds, we have achieved a new level of technology innovation for the Tokyo Stock Exchange,” says TSE managing director and CIO, Yoshinori Suzuki.
“The high performance, scalability and reliability offered by Red Hat Enterprise Linux, combined with Fujitsu’s solid system construction and the services on its server platforms, have provided the technology advances necessary to meet our mission-critical system demands.”
Wave of upgrades
Like banks, currently in a rush to upgrade their core operating systems, a wave of technology upgrades is spreading across Asia’s stock exchanges.
In January this year, Hong Kong Exchanges and Clearing (HKEx) implemented a revamped trading system for the securities market, known as AMS/3.5, with some impressive results. The order processing capacity was doubled to 3,000 orders per second and the average end-to-end system response time halved to 0.15 seconds.
This revamped trading system now supports 43.2 million orders and 7.5 million trades in a standard four-hour trading day (10 am to 12:30 pm and 2:30 pm to 4 pm). In the first two weeks, the HKSE says “AMS/3 processed about 6.5 million orders and 900,000 trades a day”.
AMS/3.8, the next technology and capacity upgrade of HKEx’s securities market systems, is scheduled to start in the second quarter of this year, and will “span across 2011-2012”.
New HK Data Centre
The bourse has also announced that it will spend some HK$700 million (US$90 million) on a new data centre in Hong Kong, due to be completed by 2013. The primary derivatives market data centre and the related IT staff members were relocated in June 2009.
The HKEx has also introduced a marketing programme to promote the use of its real-time securities market data in television coverage of Hong Kong’s financial markets provided on the Chinese mainland. It is expected to soon complete an independent review of the core application systems serving its derivatives market.
Malaysia’s bourse, the Bursa Malaysia (BM), is one of the biggest in Asia with slightly less than 1,000 listed companies. It declined to respond to MIS Asia’s questions, so information included here is from its website.
Islamic Markets
BM says it topped the world’s exchanges, recording a total of US$17.6 billion in sukuk programme listings in 2009. ‘Sukuk’ is the Arabic name for ‘certificate, legal instrument, or cheque’ but refers to the Islamic equivalent of a bond. Sukuk securities are structured to comply with Islamic law and its investment principles, which prohibit the charging, or paying of interest.
Since its inaugural sukuk listing in August 2009, the exchange says it had listed 12 sukuk by the end of December 2009.
In a media statement, BM CEO, Dato’ Yusli Mohamed Yusoff says: “Despite the slowdown in trading activities and issuances in 2009, Bursa Malaysia has marked a new era of sukuk listings. Our expedient achievement is reflective of Malaysia’s significance in the world of Islamic capital markets. Bursa Malaysia will continue to facilitate investors with the most conducive Islamic platform and will strive to remain in the leading position of sukuk listings worldwide.”
BM offers co-location hosting services to its market participants, enabling them to place their trading equipment within the same physical data centre as Bursa Malaysia’s. This enables high-speed trade execution with low network latency.
In March this year, BM announced that Patsystems, the trading solutions provider to the derivatives industry, had been selected as the technology provider for its new front-end for derivatives trading, known as Order Management System (OMS).
BM says: “The OMS will provide Bursa Malaysia Derivatives with high-speed order routing, straight-through processing and sophisticated pre-trade risk management”.
BM CEO Chong Kim Seng says: “The exchange ultimately chose Patsystems because of the accessibility and flexibility of its front-end technology which is an essential requirement for supporting our future growth plans.”
As with many other major corporations, Asian stock exchanges compete strongly, but also subscribe to the principle of ‘co-opetition (cooperation and competition)’.
In 2009, the Philippine Stock Exchange (PSE), having already agreed to a strategic alliance with the New York Stock Exchange (New York is nicknamed ‘the Big Apple”), announced plans to create a trading link among ASEAN countries; an electronic network of Southeast Asian Exchanges. The goal is to enable investors to buy or sell ASEAN-listed securities through their local brokers.
The PSE has now signed with the Ho Chi Minh Stock Exchange (HOSE). It has previously also signed with Bursa Malaysia (BM), Indonesia Stock Exchange (IDX), Singapore Exchange (SGX), and the Stock Exchange of Thailand (SET).
The aim of the ASEAN electronic link is to have the Asia exchanges “mutually collaborate and communicate information and experiences” for the development and efficient operations of their securities markets.
ASEAN Link
In February this year, at the 10th ASEAN Exchanges CEOs meeting in Manila, four ASEAN exchanges—Bursa Malaysia, The Philippine Stock Exchange, the Singapore Exchange and the Stock Exchange of Thailand—signed a letter of intent with NYSE Technologies. This appointed NYSE Technologies as the solution provider to start the design of the technology solution for the ASEAN Trading Link.
PSE president and CEO, Francisco Ed. Lim, said then that the appointment was a significant milestone towards realising the Exchange Alliance’s strategic framework that supports the establishment of an integrated ASEAN capital market.
Vast experience
“The (NYSE Technologies) bring to the table vast experience in the exchange solutions business and we are confident they will deliver cutting edge solutions that meet all our requirements,” Lim said. “We are also excited about the possibilities of leveraging on their extensive order routing networks to bring order flow in the ASEAN markets.”
NYSE Euronext CEO, Duncan L. Niederauer, described the ASEAN electronic link as “an historic initiative in an increasingly important part of the world”.
“The ASEAN Trading Link will strengthen the competitiveness of the member exchanges and enable them to better serve their customers,” Nierderauer said. “National and regional interest will be well-served by giving investors greater access to global capital to facilitate new development, growth and wealth creation.” MIS Asia
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