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Exchanges around the world are investing in new technology and services to attract a greater share of algorithmic and automated trading volumes. Chris Hall takes a whirlwind tour of the exchanges that are pulling out the stops to bring much-needed sources of liquidity to local markets.

A Global Round Trip

Overshadowed perhaps by the efforts of US and European exchanges to attract algorithmic and automated trading volumes, competition between less established markets is equally fierce. Exchanges across all continents are updating legislation, upscaling technology and upgrading bandwidth to attract algo and auto traders that are looking to apply their models to new markets.

“There’s a huge amount of investment going on in IT infrastructure by exchanges to increase message processing capabilities, and thereby increase volumes,” says Yousaf Hafeez, Director of Product Development, BT Global Financial Services. “But the investment in technology has to be an ongoing process; the more information you can provide to algo traders the higher their volume of trading.” Hafeez, responsible for exchange partnerships at BT, suggests exchanges’ efforts should be focused on three key areas: low latency data feeds that supply every price tick; colocation services to further reduce latency; and use of pricing models that reward higher order flow volumes. “If they can embrace these changes, exchanges in emerging markets will soon see rising volumes on their venues from algo traders,” he says.

Grigory Gankin, MICEX:

“We can see the real increase of algorithmic and automated trading with our own eyes.”

Coming in from the cold

Russia is one market experiencing volume growth - and significant IT investment. The battle for algo and auto trading volumes is just one of the several fronts on which its two exchanges compete. Established in 1992, MICEX (Moscow Interbank Currency Exchange) is an integrated exchange that trades, clears and settles equities, corporate and government bonds, foreign exchange, money markets, commodities and derivatives. The largest exchange in Russia, the CIS and Eastern Europe in 2006 (MICEX reported daily average transaction volumes of RUR211bn (USD7.8bn)), technology has been key to the exchange’s growth. More than half of the exchange’s securities transactions are carried out via Internet-enabled broker systems; foreign financial institutions can trade on MICEX’s equity exchange via GL Trade’s proprietary order routing network.

RTS (Russian Trading System) has traded equities, bonds, futures and options since 1995, and migrated its eight most liquid blue-chip stocks to an orderdriven trading platform in November 2005. Orders are submitted to its anonymous electronic order book either through RTS’s Plaza trading system or via the exchange’s API (minimum order value USD5,000). The exchange’s futures and options platform (average daily open interest 1m+ contracts) is also accessible via direct market access and RTS plans to move the rest of equities and bonds to an order-driven platform in due course. ...

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