Amid a discussion about the prevalence of outages at trading venues at the 2013 Mondo Visione Exchange Forum this week, Jon Ross, chief technology officer (CTO) at KCG, which of course suffered its own brokerage technology problems last year, said that he welcomed recent developments such as NYSE saying it’d use BATS’ systems in the event of failure, adding resiliency to the markets. The exchanges themselves, including BATS, CME and LSE representatives, discussed the necessity to test following the failure of Nasdaq and other venues this year, plus the centrality of technology in today’s regulatory-driven trading environment.
“The idea of making something perfect is not useful. Instead I think it’s better to concentrate on having a good back-up resiliency plan for when technology sometimes goes wrong,” said KCG’s CTO Jon Ross, speaking as a user at the 2013 Mondo Visione Exchange Forum on 13 November. The Forum, held in London’s Drapers Hall, was convulsed with news of the confirmation of the $10.9bn takeover of NYSE-Euronext by the IntercontinentalExchange (ICE) and updates about the planned BATS takeover of Direct Edge, amid consolidation discussions and debate about coming trade repositories and the start of the European Market Infrastructure Regulation (EMIR) next February.
David Howson, chief operating officer (COO) at BATS Chi-X Europe, a fellow panellist on the technology-focused afternoon session at the 2013 Mondo Visione Exchange Forum, understandably commented that “the merger with Direct Edge is the major technology (and integration) focus for me right now, as we seek regulatory approval.”
The wide-ranging afternoon technology session, including Michel Everaert, managing director of over-the-counter (OTC) Solutions at CME Group, and Brian Schwieger, head of equities at the London Stock Exchange (LSE) Group, also touched upon liquidity, best execution and post-trade services, alongside the provision of third-party technology services. Established exchanges are offering tech platforms to new trading venues or other financial market participants as a way of diversifying and finding much needed profits as equities volumes fall - a topic addressed earlier in the year at the TradeTech Europe show.
“The London Stock Exchange brought the MillenniumIT company a few years ago for this reason,” said the LSE’s Schwieger. “Technology is almost a product in its own right now.” Sales to emerging market venues such as the Lima stock exchange and to Bursa Malaysia, which recently purchased the LSE surveillance (of market abuse) regulatory and risk platform - with surveillance another topic much discussed at Mondo Visione 2013 - proves Schwieger’s point about how tech is now a standalone product.
According to Michel Everaert, managing director, OTC Solutions at CME, the group spends significant money on technology too (as all exchanges do). He cited a $40m IT spend on market surveillance per year, as one instance of CME’s investment. “We invest in third-party technology too, but tend to focus on new marketplaces, so for instance we’ve provided technology to some SEFs in the US,” he said.
Conclusions and 2014 Technology Challenges
When asked to outline his 2014 technology challenges CME’s Everaert said that his focus next year would be on the regulatory landscape and meeting obligations in the SEF, OTC clearing area and so on, as [post-crash] regulatory rules are finalised. “We are only in the first 10 yards of a 100m race,” he added.
MiFID 2, the second iteration of the European Markets in Financial Instruments Directive, was the prime 2014 concern in the equities area for the LSE’s Schwieger, but he admitted the OTC clearing and collateral changes underway would be the major force impacting the wider markets next year. The Target 2 Securities (T2S) project is of course a major component in the changing post-trade landscape as well, and was something much discussed at this year’s Sibos market infrastructure forum. It is yet another regulatory-driven initiative set to change the markets in the years ahead.
For BATS Chi-X Europe’s COO, David Howson, “the focus in 2014 is all about delivery for us”, with the planned merger with Direct Edge no doubt top of his mind and the exchanges' imminent initiatives around Exchange Traded Fund (ETF) listings and the BXTR trade reporting service. Howson is facing the same post-crash regulatory compliance projects that other technologists employed in the capital markets arena now have to deliver, and 2014 promises to be a busy time for everyone in the industry due to widespread market and regulatory changes now underway.
• For more about the capital markets arena and the profound regulatory and market changes happening in the OTC clearing space, please read the bobsguide blogger (aka contributing editor) submissions curated by Courtney Doyle McGuinn at FIX.