The Johannesburg Stock Exchange is staying ahead of the pace required for a modern exchange, improving efficiencies through new trading solutions and colocation technology. By Donna M. Nemer, Director, Capital Markets & Group Strategy and Merlin Rajah, Senior Technical Account Manager, Equities & Equity Derivatives, Capital Markets, JSE.
The Johannesburg Stock Exchange marked its 130th birthday last November, extending its record as Africa’s largest and oldest existing stock exchange. But there was no time for cakes or candles: trades continued to be executed and decisions made in a microsecond environment, with the JSE proving to be faster and more agile than ever.
The JSE’s equity market, which has been on the Millennium IT platform since 2012, saw its central order book process some 67.7 million trades in 2017, with volumes of 85 billion and a value traded of USD463 billion. To stay ahead of the pace required for a 21st Century exchange, the JSE has implemented a wide range of technologies, replacing its trading systems while at the same time launching its own colocation service.
The JSE’s existing derivatives trading solution is a locally developed solution, built for a South African ecosystem. Its proprietary API is little known to global players, which has impeded the JSE’s global competitiveness in the derivatives arena due to concerns around latency and scalability.
The JSE’s new trading solution, ITaC, allows the exchange to compete on the global stage, delivering world-class levels of speed and latency while decoupling trading and clearing. The ITaC – or Integrated Trading and Clearing – project is a multi-year programme to introduce an integrated solution for the exchange’s trading and clearing services. On the trading side, all derivatives and cash bond markets will migrate to the MillenniumIT (MIT) trading platform; while on the clearing side all markets will migrate onto the new Cinnober Real-Time Clearing (RTC) solution, which offers a single, multi-asset real-time clearing platform. Phase 2 will be implemented later this year, as the equity derivative and currency derivative markets migrate onto this platform.
MIT, a globally recognised brand and part of the London Stock Exchange Group, will enable international investors to easily access the JSE through Direct Market Access (DMA). This trading software is provided to a number of leading exchanges, including the LSE and the Hong Kong Stock Exchange. The new technology will use MIT’s open API, with the new trading gateways expected to reduce bandwidth requirements across the board. The Cinnober technology, provided by another global player with customers from Sao Paulo to Bangkok, will introduce a real-time, multi-asset class solution across JSE markets.
On completion, the ITaC implementation will offer a range of benefits, including greater cross-market harmonisation; a faster and more stable technology platform aligned to international standards; more robust and flexible trading and clearing systems (with separate APIs for each); together with richer end-user functional capabilities, specifically in the clearing space. Clients will see additional efficiency in their risk management with the ability to allow more offset through reduced margin requirements.
ITaC will also allow the JSE to realise two of its major strategic objectives: integrated trading and integrated clearing. By introducing internationally recognised systems, the JSE strengthens its position as a global market player by providing clients with more stable and efficient trading and clearing services. In addition to offering the benefits already mentioned, the JSE intends to move to a value-at-risk based margin methodology as part of the ITaC project, supporting more flexible and efficient margin offset. The JSE will also introduce the ability to utilise non-ZAR cash collateral to fund margin payments, in a move that is expected to contribute to more efficient capital management across the South African market.
Meanwhile, the JSE has also launched its own Tier III Colocation data centre, building out 35 housing units in May 2014, with capacity to build a further 35 should the need arise. That need arose in 2018, and a further build-out is now underway to meet increasing demand from local and international clients. The colocation facility was built with the sole purpose of assisting the JSE’s trading community by providing a first-class trading venue, coupled with a robust trading engine and a solid, secure and latency-sensitive connectivity method. The JSE measures the network roundtrip latency at sub-100 microseconds or, quite literally, faster than the blink of an eye. Unlike other local data centres, the JSE does not intend to generate substantial profits from its colocation service. Rather, it aims to assist the market with a robust offering at a very cost-effective price point. Clients can take up a 3kVa rack, a latency sensitive patch panel with fully redundant primary and secondary ports and 2x10GB fibre cross connects for approximately USD3000 per month.
The colocation facility also provides fully redundant connections, which help to ensure uninterrupted connectivity. Clients are provided with a high quality, top-of-the-rack patch panel which offers multiple primary and secondary ports, in turn providing access to the various market gateways and services. These connections are all provided through laser cut 10GB fibre cross connects, and all connections from the client racks to the matching engines are of equal length ensuring that no client is at a disadvantage, no matter where they are located in the data centre.
Finally, the development of the Bond Electronic Trading Platform (ETP) for government bonds in conjunction with South Africa’s National Treasury and its primary dealers remains an important strategic initiative for the JSE. The ETP will allow the National Treasury’s nine primary dealers to transact government bonds on an electronic central order book platform. These transactions will be matched and sent to the Central Securities Depository (CSD) for settlement. The choice of the technology for the ETP for government bonds and the business model that would best enable that technology to be operated cost-effectively have been agreed, and MTS Spa has been appointed as technology service provider. The work to deliver the ETP is well on track, with user testing already started and all stakeholders deeply engaged. The project is expected to go live in 2018, adding in additional price transparency to the overall market for government bond trading in South African instruments.