Evolution in Exchange Technology: The Arms Race Continues (Strategic Focus)

Table of Contents

OVERVIEW

• Catalyst
• Summary

KEY MESSAGES

• More competition among trading venues is on the way
• Investment in exchange technology continues apace
• Trading venues have become technology vendors too
• Latency and throughput drive matching engine development
• Market surveillance has to keep up with faster matching engines and greater order volumes
• Clearing relies on risk management; settlement is about managing multiple accounts
• Opportunities for technology vendors differ from small to large venues

MARKET OPPORTUNITY

• More competition among trading venues is on the way
• Investment in exchange technology continues apace
• Trading venues have become technology vendors too

TECHNOLOGY EVOLUTION

• The driver in exchange technology is to do more in less time
  • The drivers for matching engines are latency and throughput/scalability
  • Market surveillance systems need to keep up with the matching engines, multiple assets and venues
  • Clearing and settlement require good risk analysis and records management
• Opportunities for technology vendors differ from small to large venues
• There are also opportunities to sell surveillance technology to regulators

CUSTOMER IMPACT

• Latency and throughput drive matching engine development
• Hardware acceleration has not made it into matching engines
• Market surveillance has to keep up with faster matching engines and greater order volumes
• Clearing relies on risk management; settlement is about managing multiple accounts

COMPETITIVE LANDSCAPE

• Trading venues which develop and sell their own technology
  • NYSE Euronext
  • NASDAQ OMX
  • Deutsche Borse Group
  • London Stock Exchange
  • Financial Technologies (India)
  • Chi-X Global
• ISVs offering exchange technologies
  • Cinnober
  • Patsystems
  • Smarts Group
  • Progress Software
  • List Group
  • Fidessa
  • Quod Financial
  • IBM
• IT service companies
  • HP
  • Accenture

GO TO MARKET

• Recommendations
  • Determine which type of trading venue you want to target
  • Depending on the geography you target, you may need to put in local support staff
  • Smaller vendors may need to partner with a credible SI to win larger deals

APPENDIX

• Definitions
  • Central counterparty (CCP)
  • Central securities depository
  • Dark pools
  • MiFID
  • RegNMS
  • Code of Conduct for Clearing and Settlement
  • Smart order router
  • Alternative trading system (ATS)
  • Electronic communication network (ECN)
  • Multilateral Trading Facility (MTF)
• Methodology
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Latency and throughput rates

FIGURES

• Figure: How data flows in a trading environment
• Figure: Market structure for clearing and settlement in the US and Europe