Click to edit Master title style
Technology: Propelling Exchanges in Developing Markets
A Case Study of the NSE
Ade Bajomo
Executive Director | Market Operations and Technology Division
for
The 4th Annual Building African Financial Markets Capacity Conference
September 18th 2015
Click to edit Master title style
| Outline
1
• What We Do Now Matters
2
• Technology – A Capital Market Enabler
2
• Industry Trends - The Race to Zero
3
• Emerging from the Frontiers
4
• Enabling Trading Technologies
5
• Exchange’s Technology Overview and Architecture
6
• Technology as an Enabler for Inclusive Growth
7
• The NSE Example
8
• NSE Supporting African Capital Markets
9
• Q&A
2
edit Master
title
style
Brief to
Overview
of The
NSE
| Click
Company Highlights:
•
•
•
•
Today, NSE services the largest economy in
Africa, and is championing the development
of Africa’s financial markets.
The NSE offers listing and trading services,
licensing services, in addition to market data
solutions, ancillary technology services, and
more.
The Exchange offers a robust and
internationally
recognized
regulatory
environment that bolsters trust and investor
confidence.
The NSE is a full member of the World
Federation of Exchanges (WFE) with
meaningful participation in other global and
regional organizations, some of which set
global standards.
190 Equities (N10.2 tn)
60 Bonds (N5.6 tn)
4 ETFs (N4 bn)**
nd
2 *
Largest Exchange in Africa
by Market Cap
At N15.8 tn ($79.5 bn)**
184
Listed
Companies**
*Excludes dual listing not on the primary market
**As at 31st August 2015
219 Active
Dealing
Members**
Local 47.1%
Foreign 52.9%
Total Market
Activity Jan - Jun ’15
3
Click to
edit
style
We
DoMaster
Now title
Matters
|What
GDP Per Capita (in USD at constant prices since 2000)
Country
China
Ghana
Kenya
South Africa
Nigeria
1970
122.29
294
291.49
3104.02
222.18
2012
2634.71
402.7
478.22
3825.09
1452.09
%Change
2054%
37%
64%
23%
554%
Population Growth
Country
Source: Trading Economics
1970
2012
%Change
China
818
1330
63%
Ghana
8.7
25
187%
Kenya
11.3
42
272%
South Africa
22.5
48.8
117%
Nigeria
57.4
166
189%
The difference 30 years make in comparative numbers
Nigeria’s GDP Per Capita outperformed China barely thirty years ago (88th in the world), yet
China is now miles ahead, having successfully untapped its opportunities (2nd in the world
vs Nigeria’s 114th Position before rebasing (now 26th)
4
| Click to edit Master title style
We are faced with a series of
great opportunities
brilliantly disguised
as impossible situations.
5
Technology:
An Essential
Capital Market Enabler|
to edit Master
title style
| Click
Moving with the times
• The Securities industry is largely driven by technology,
whereby the ability to develop a focused strategy for the
utilization and deployment of resources is critical.
• Support for new technology driven trading approaches is
key
• Utilization of data (including those from the Social
Medium) to develop automated trading strategies and
enhanced risk management is now mainstream
• Trading venues, regulators and regulated entities need to
keep abreast of the trends to make markets more
transparent and fairer for investors and participants
19th Century iPad
20th Century Trading
• Speed, accessibility and robustness of technology systems
are now critical success factors of modern trading venues,
underpinning the achievement of scale economics
• Key Industry trends include, but are not limited to the
following:
–Mobile / E-trading
–Co-hosting and Co-Location
20th Century Tech Evolution
–New technology enabled trading models
–Reduction in latency and increases in order book
capacity
–Market surveillance technology
NeXt Generation Trading
Click to edit
Master The
title style
Trends:
Need for Speed|
| Industry
Reducing the time of execution
•
Low latency allows for unnoticeable delays between an input being processed and the corresponding
output providing real time characteristics
LATENCY DEVELOPMENT, 2000 to 2011
Latency MS
400
Year
2000
2007
2008
2009
2010
2011
350
300
200
100
100
5
0.9
0.01
2009
2010
2011
0
2007
2008
Latency
10s
350 ms
100 ms
5 ms
<900 us
<100 us
*Source: KPMG - Winning platforms, 2012
Key Trending in Latency reduction
•
Over the past 5 years, most execution venues have placed substantial investment into creating trading
infrastructures and platforms that reduce latency, support high volume flow, and disseminate market
data.
Key theme to consider: Speed and Connectivity
• How does your speed of access and level of connectivity compare to your main
competitors?
• Do you understand the commercial implications of not updating legacy IT systems?
to edit Master
title
style to Zero |
Trends:
A Race
| ClickIndustry
KEY DEVELOPMENTS
• Requirements to act on changes in the market
near real-time has led to the Race to Zero
• Market participants look to optimize the time
required to access market data and initiate and
execute a trade
• As network providers continue to reduce latency
and increase availability, many exchanges have –
in turn – optimized their order/trade and market
data protocols
ORDER BOOK CAPACITY
NYSE Euronext
(US Options)
38,000
1,000,000
18,000
LSE
500,000
3,000
Tokyo SE
410,000
30,000
250,000
Nasdaq OMX
• This has also led to the evolution of exchanges
towards the offering of trading-related IT services
that facilitate automated trading and an
increased focus on facilitating trading by for
example allowing market participants to host
physical servers in the same data center as the
trading/ matching engines
Hong Kong EX
15,000
120,000
ASX Trade
20,000
100,000
Bombay SE
1,000
30,000
• Accordingly, several exchanges have undergone
substantial technology upgrades in order to
increase their order book capacity measured by
Orders Per Minute (OPMs) as shown in the graph
to the right
JSE
200
30,000
0
500,000
*Source: KPMG - Winning platforms, 2012
Before Upgrade
After Upgrade
Nigeria
Before: ~1,000
After Upgrade: >50000
1,000,000 1,500,000
Orders Per Minute (OPM)
Emerging from the Frontiers – Technology an
to edit Master title style
| Click
Enabler
CRITERIA
FRONTIER
MARKET
NSE'S CURRENT
POSITION
(as of Q1 2015)
EMERGING
MARKET
Openness to Foreign Ownership
At least some
Significant
Significant
Ease of Capital Inflow/Outflow
At least partial
Significant
Significant
Efficiency of the Operational
Framework
Modest
Modest
Good & Tested
Stability of Institutional Framework
Modest
Modest
Modest
No. of Cos. with Full Market Cap
2 / $516M
11 / $1,032M
3 / $1,032M
No. of Cos. with Float Market Cap
2 / $37M
13 / $516M*
3 / $516M
No. of Cos. with Security Liquidity
2 / 2.5% ATVR 13 / >2.5% ATVR*
3 / 15% ATVR
Repatriation of Capital and Income
Modest
Significant
Significant
Foreign Ownership Restrictions
Modest
Low
Low
Low
Low
Modest
Broker Competition To Ensure High
Quality Services
• Exchanges classified as
Emerging under MSCI
classification attract more
liquidity and direct foreign
investments
• These exchanges have
immense impact on their
economy and wealth
creation in their countries
• MSCI Frontier Index Mkt
Cap: USD82 Bn
• MSCI Emerging Mkt Index
Mkt Cap: USD 3.4 Trn
*As of 2013
May 2015
The Nigerian Stock Exchange
9
Click towe
editallMaster
want to
title
bestyle
Swimming
| Where
Frontier
Market
Emerging
Market
Developed
Market
Click to edit
Trading
Master
Technologies
title style
| Enabling
Enabling
Technologies
A critical pre-requisite
for frontier market
emergence is
enabling technology,
facilitating operational
efficiency within the
markets and their eco-systems.
The trading technology framework impacts the
liquidity and depth of the market, access to the
market; and, market surveillance and transparency.
Trading technologies impact the broker
community (local and
international) affecting their
costs, ease of access and
operational
strategies
volumes.
Technology also affects the
way investors access the
market and manage their
portfolios.
• Trading Platform
• Market Database
• Networks
• FIX Protocol
• Order Management System
• Business Continuity
• End to End Process Automation
• Monitoring & Capacity Planning
11
Click to edit
Technology
Master title
Considerations
style
| Trading
Trading Platform
•
A high performance multiproduct, multi-asset platform
is an essential building block
•
Highly scalable to cater for
wider participation of growing
middle-class and investing
segment of the population
•
•
•
Market Database
•
Historical data is stored in
high performance
databases, separate from
the core trading engine
•
A ‘lean and mean’ trading
engine can be maintained
•
Supports global investor
participation and offers
features such as direct market
access and automated trading
Market database essential
for the provision of BI
services and data products
•
Architecture must support
low latency and maximum
system availability for users
•
Helps add value to the
investment decision making
process of market
participants
Revenue
The trading engine, in
addition to order matching,
should also carry out
functions such as index
computation and position
keeping
•
Market data can provide an
alternative source of
revenue for an exchange
Networks
•
•
Emerging frontier markets
need to develop low
latency, reliable, secure and
scalable data networks that
will cater for the on-going
evolution of trading
Networks must be well
designed and optimized,
with the ability to carry data
at the highest speeds to
support the high volumes of
buy and sell orders
generated by the trading
engine
FIX Protocol
• The Financial Information
Exchange (FIX) protocol has
seen widespread adoption by
the global capital market
participants
• Fix Adapted for Streaming
(FAST) is also an essential
baseline requirements for
today’s trading platforms
• FIX and FAST utilized by market
data vendors and order
management system providers
to interface with trading
engines
• Trading platform should also
be upgradeable to run the Itch
and Ouch protocols (where
higher performance levels are
required by the market)
12
Click to edit
Technology
Master title
Considerations
style
(Cont’d)
| Trading
Order Management
System
•
•
•
Process Automation
Automated interfaces
between trading platforms
and order management
systems is a key
requirement for a market to
move from the frontier to
emerging classification
•
The implementation of a
minimum technology
standard for the broker
dealer community will be an
enabler for technology
driven efficiency in these
markets
•
It will also engrain best
practices in achieving
improved levels of
transparency and reduced
order placement to
execution times
Process automation is key
to ensuring that the
investments in technology
and innovation are
translated into a high
quality service for market
participants
A continuous improvement
process is also required to
update operating efficiency
and add true value to the
experience of market
participants
Business Continuity
Monitoring and
Capacity Planning
•
Trading infrastructure and
applications need to be
monitored in real time to
ensure and maintain high
availability of systems
•
Diagnostic and capacity
management tools provide
an early warning system in
the event of impending or
actual problems
•
Prompt alerting is key in
mobilizing resources quickly
to resolve problems as they
arise
•
Tools must also provide the
ability to drill down, and
present arising alerts from a
range of applications,
hardware and networking
systems via a single
administrative interface
•
A robust business continuity
plan is essential - it will
ensure timely and
dependable recovery of
services in the event of a
disaster
•
The plan must ensure an
adequate level of
geographical dispersion from
the main site, and also
support smooth recovery to
the backup systems in the
shortest practical period of
time
•
Business continuity
processes should be
regularly tested by the
Exchange and its wider ecosystem of broker-dealers and
key market participants
13
Click to edit
Technology
Master title
Overview
style
| Exchange
Secure WAN
Market Data Feed
FIX
New investor access channels
Traders/
Market Makers
Trader Workstation
Trading Engine
FIX
MM/Broker OMS
Post Trade
Management
FIX
SDK
CSD
Surveillance
Market
Database
Secure WAN
Market Displays
Website/Portals
Secure WAN
Administrator
Workstations
14
Click to edit
Technology
Master title
Architecture
style
| Exchange
LEGAL &
REGULATION
TECHNOLOGY
FINANCE
OPERATIONS
MI/DATA
WAREHOUSE
AUDIT
BUSINESS
DEVELOPMENT
CAPACITY
MANAGEMENT
HR
CORE TRADING APPLICATION SERVICES
MATCHING
ENGINE
DATA
WAREHOUSE
RISK MANAGEMENT
FIX
INTERFACES
SURVEILLANCE
MARKET DATA
DATA PORTAL
ALGORITHMIC TRADING
CORE INFRASTRUCTURE SERVICES
FAX
MOBILE PC/BROWSER
DESKTOPS/HANDHELDS
HIGH PERFORMACNE
CABLING
ULTRA LOW LATENCY
SERVICES
GATEWAY SERVICES
OPERATING SYSTEMS
VIDEO AND VOICE SERVICES
NETWORK SERVICES
SERVERS
STORAGE & PRINT SERVICES
MANAGEMENT SERVICES
DOCUMENT MANAGEMENT
APPS
MANAGEMENT
ANALYTICS &
BIG DATA
IDENTITY MANAGEMENT
WORKFLOW AUTOMATION
BUSINESS PROCESSES
ENCRYPTION
WORKFLOW AUTOMATION/BUSINESS PROCESSES/ANALYTICS/DOCUMENT MANAGEMENT/COLLABORATION
AUTHENTICATION
Hardware Agnostic
MULTI-CAHNNEL SERVICE ACCESS
HARDWARE
MANAGEMENT
ADMIN
NETWORK LATENCY MONITORING
HOSTING
15
MONITORING
CLEARING AND
SETTLEMENT
FIREWALL
MARKET
SERVICES
SECURITY SERVICES
PDA/TABLET TELEPHONE LAPTOP
BUSINESS AND SUPPORT SERVICES
|
FIX Life Cycle|
Click to edit Africa’s
Master Exchanges
title style
| Integrating
17
Trading
Model
Options
New Age Technologies
to edit
Master
title– style
| Click
Algorithmic Trading
• Algorithmic trading, also called automated trading, black-box trading, or
algo trading, is the use of electronic platforms for entering trading orders
with an algorithm which executes pre-programmed trading instructions
whose variables may include timing, price, or quantity of the order, or in
many cases initiating the order without human intervention
Customer Driven Electronic Trading
• Buyers and sellers of securities are provided with electronic access to trade
in the market by their broker dealers via tools that are easily accessible and
appropriate to support the customer business. Institutional investors are
provided with terminals that link up to the broker dealer order management
system while retail investors are provided with access to trade via the
internet using a smartphone, tablet device or a traditional computer
Direct Market Access
• This refers to granting institutional investors (known as the buy side) and
other traders wishing to trade in securities access to do so directly from
the information technology system of their broker-dealer firms to the
Exchange’s order book, rather than the normal trading method of the buyside companies passing their orders to the broker-dealer firms ‘ trading
desk for execution. The technique is often combined with HFT
High Frequency Trading
• High-frequency trading (HFT) is the use of sophisticated technological tools
and computer algorithms to rapidly trade securities (a form of Algo trading).
HFT uses proprietary trading strategies carried out by computers to move
in and out of positions in seconds or fractions of a second. By 2009, HFT
accounted for 61% of the US trading market share, but has since
Click
Opportunity
to edit Master
for Inclusive
title styleGrowth
| An
% Point Reduction in Poverty for every % of GDP growth, 1999–2010
•
0.60
China and India’s poverty headcount ratios declined 78.3% and 33.81%
respectively from 37.4% and 49.4% in 1996, to 9.2% and 32.7% in 2010,
compared to a 9.75% decline to 62% for Nigeria in the same period.
Other rapidly growing countries have successfully converted economic gains
into lower poverty rates, Africa has a significant opportunity to do same.
0.52
0.50
•
0.40
0.32
0.30
0.30
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Indonesia
Botswana
May 2015
Source: McKinsey Global Institute (MGI)
South Africa
Mexico
The Nigerian Stock Exchange
Ghana
Brazil
Nigeria
19
Click to edit
Inclusion
Master title style
| Financial
May 2015
The Nigerian Stock Exchange
20
to edit
Master
title style
| Click
Putting
it all
Together
What we offer
Monitoring
and Capacity
Planning
End to End
Process
Automation
Trading
Platform
Market
Database
Enabling
Technologies
Business
Continuity
Low Latency
Networks
FIX Protocol
Order
Management
System
ClickSupporting
to edit Master
African
titleCapital
style Markets
| NSE
1st Class Trading Platform
 Our customized Nasdaq OMX
system provides the NSE with
a 1st class trading platform
used globally.
System Support
 Strong global experienced
workforce trained by
NASDAQ with previous
Nasdaq implementation
experience
Scalable Infrastructure
 X-gen utilizes leading
technologies such as IBM,
Cisco, EMC to support and run
the trading platform
Total Cost Offering
Price Transparency
 This will be considerably
cheaper as you will be
leveraging our existing
infrastructure, support
systems and expertise
 Trading in Multi asset / Multi
product
 Unparalleled mobile/ etrading capabilities
The NSE can
Provide...
Market Data Offering
Data Centre
 Global access to MDV’s
(Reuters, Bloomberg)
 Access to data via FIX 5.0
protocol
 Scalable low latency
infrastructure, underpinned
by a world class DC
 Global connectivity using our
ISP
Test Strategy
Sponsored Access
 A comprehensive test strategy
offering covering 99.9% of
your requirements (test plans,
test cases, test cycles can be
leveraged)
•
Direct Market Access
capability to support BuySide firms trading through
to the Exchange
22
title style
ThetoX-edit
GenMaster
Co-Hosting
Opportunity
| Click
What X-Gen can deliver to you:
Performance Improvements
New Business Possibilities/Capabilities
• One of the fastest matching engines in the
world – capable of handling over 40,000
order matches per second
• Low latency trading < 100 nanoseconds
• Can handle over 10,000 securities and
million of trades per day
• Supports several asset trading types including-
New Operational Paradigms
Reduced Total Cost of Ownership
•
•
•
•
• Build on world class data centre infrastructure
and network providing lower operational costs
• Superb management tools for easier market
control, maintenance
• High scalability, High availability design
Supports FIX and SDK toolkits
Sponsored access
High Frequency Trading
Easier Market Data Disemination interface
via FIX
• Developed with supporting datawarehouse
• Commodity • Equity
• Future
• Debt
• Option
• ETFs
• Strategy
• FX
• Supports Market Makers, Liquidity Providers
• Supporting reporting, surveillance tools
ClickNSE’s
to edit
X-Suites
Master title style
| The
A secure on-line portal for
Issuers to submit financial
and other information to
the NSE and the market in
an
efficient
manner,
bridging any disclosure
gaps
between
listed
companies and the capital
market.
A program that empowers
whistleblowers to report
possible violations of
Exchange rules, the
securities law and fraud
related to activity within
the market.
Compliance
A user-friendly website
that runs smoothly on
mobile platforms, and
allows the Exchange to
scale up its web services in
line with user demand.
X-Compliance provides
compliance related
information on all listed
companies, including
Value added services from
the NSE in support of
listed companies and
investors. They include:
Corporate Access; Investor
Relations;
Institutional
Services;
Corporate
Governance
and
Independent
Equity
Research.
BrokerTraX
BrokerTrax provides a
transparent view into
Dealing member firms
found liable for breach of
market rules.
24
Click to
Transformative
edit Master title
Technology
style
Overview
| NSE’s
Rollout of X-Web
and X-Whistle,
and the NASD
trading system is
hosted on the
NSE’s X-Gen
platform.
Beginning of the
X
“ -era”, with new
management team
focused on
technological
transformative
agenda.
2011
NSE launches
several
transformation
initiatives such as XCompliance, XQual, Broker-TraX,
etc.
2012
NSE continues its
agenda to provide
“Best-in-Class”
technology with
Smart Trading tools
and enhanced Market
Surveillance
capabilities.
World-class Trading
Technologies
2015
2014
2013
Launch of X-Gen,
dubbed as the fastest
trading engine in
Africa; First-ever
issuer reporting portal
in Nigeria, X-Issuer is
introduced.
25
to edit
Master
title style
Changing
The
Customer
Experience |
| Click
 Improved market liquidity and depth
 Modern, low- latency, high performance trading platform
 Fast Remote Trading Capabilities
 Wider Access to “Real Time” Data
 Mass Population and International Reach
 Unparalleled Automation and Connectivity
 Support for latest securities trading paradigms
 Improved market transparency and governance
 Adherence to standards
 Best in class regulatiom
| Click to edit Master title style
But it’s not just trading
technology.
Tech connects all the dots
in our business.
27
Click Home
to edit Master title style
| Take
African Stock Exchanges must be savvy in the
identification, implementation and exploitation
of appropriate trading technologies as an enabler
for the integration of African Capital Markets and
the move into the emerging, or even, developed
market classification.
Technology must be underpinned with robust business processes to
help achieve improved participation and liquidity for their markets,
and also offer a basis to grow the markets through increased listing
activities and diversified product offerings.
This will encourage mass market participation, thereby supporting
financial inclusion -the foundation for sustainable wealth, inclusive
economic growth and national development.
28
Click to edit Master title style
THANK YOU
Questions & Answers