European Exchanges: Roadmap to 2016

The Eurozone has seen a fair amount of turmoil over the last 12 months, from the European debt crisis deepening in Greece, to Spain, Portugal, and Ireland witnessing various stages of recovery. All of this is taking its toll as a wave of new regulatory requirements is washing over the continent.

Additionally, the way trading firms view technology—and their desire to find partners in the market, rather than go about building pricey proprietary solutions—continues to evolve as they look to handle and manipulate a deluge of data around both their holdings and execution. In this new environment, European exchanges are poised to take on even greater prominence in terms of market position and technological developments in 2016, even as many major operators complete their own organizational and systems transformations at the same time.

Here are four of those exchanges’ stories.

Euronext: Business First
It is fair to say that last year was the most significant in Euronext’s 15 year history. In June 2014, the exchange completed the initial public offering that moved it from the ownership of IntercontinentalExchange (ICE) to independence.

The month prior saw CEO Dominique Cerutti depart for consultancy Altran Technologies and COO Jos Dijsselhof installed as an interim replacement, tasked with moving the exchange’s businesses from ICE’s infrastructure on to Euronext’s own technology stack.

“If we can adopt common standards it’s good for us and it’s good for our members. It also gives us the opportunity to partner with companies without the overhead of an acquisition.” Nick Thornton, Euronext

It’s of little surprise then to find Euronext just over one year later focusing on a re-optimization program better suited to an independent exchange.

Nick Thornton, global head of market solutions at Euronext, says this is an ongoing, incremental process “much like Microsoft has done with its upgrades. In the past we have seen big infrequent increments; in the future we should see continuous fine-grained, incremental improvements.”

The core of the Euronext technology suite is the Universal Trading Platform (UTP), the bedrock of the exchange’s activities since it was owned by NYSE. Thornton says there are five key points affecting the optimization of both UTP and the exchange’s wider activities: resilience, scaling, latency, lower costs, and time to market.

Euronext plans to bring in new elements such as Kafka for low latency and Hadoop for big data—both Open Source, Apache-supported technologies—as well as yet-undisclosed proprietary software, which Thornton says includes “very advanced technologies to help us make more of the new, multi-core cards that are coming to market now.”

While other exchanges in Europe have been flexing their financial muscles with large outlays on acquiring new systems, Thornton says it is unlikely that Euronext will take a similar route, partly due to the nature of the UTP platform itself.

“We are fortunate because UTP was born in the days of the NYSE Euronext group so we have plenty of experience of designing multi-market and multi-asset class architectures,” he says.

Euronext will also look to maximize its use of industry standards and Open Source. “If we can adopt common standards it’s good for us and it’s good for our members,” Thornton says. “It also gives us the opportunity to partner with companies without the overhead of an acquisition.”

Euronext’s re-optimization strategy began with identifying “the real business drivers that our market managers wanted,” and over a year into the program the message is still very much one of internal fine tuning, with technology developments playing a supporting role to the business drivers of the exchange.

Deutsche Börse: Technology in the DNA
Deutsche Börse has never been a shrinking violet of the exchange world and since the arrival of new CEO Carsten Kengeter in June, the Frankfurt-based group has stepped up its efforts to bring its technology focus to greater levels.

The headline-hogging announcement in July that Deutsche Börse had agreed to a €725 million ($796 million) deal to acquire foreign exchange platform 360T evidenced not only a desire to diversify its operations, but to do so with technology as the focal point.

“We have a lot of initiatives ongoing, due to the fact that technology is the basis of everything we are doing at Deutsche Börse Group,” says Hauke Stars, member of the board of Deutsche Börse Group and responsible for IT and market data and services.

Stars says this constant project workload is a reflection of the shifting environment many market participants find themselves in.

Deutsche Börse completed 30 project rollouts in the first half year alone across the group’s different business lines, covering enhancements to real-time risk margining product Prisma, the rollout of a cloud-based solution tackling the upcoming Mifid II regulation, and projects relating to the launch of pan-European settlement project Target2–Securities (T2S).

“Technology plays an extremely important role in this world of exchanges and market infrastructure providers,” says Stars. “Technology is in the DNA of Deutsche Börse and we focus on leveraging it even more.”

A successful request for proposal saw Deutsche Börse appointed to develop and operate the central platform and applications for a joint European intraday power market within the framework of the European Cross Border Intraday Initiative (XBID), which is scheduled to go live in 2017.

Stars says drivers like regulation and planned geographical expansion, such as Deutsche Börse’s work with the Shanghai Stock Exchange, are opportunities to offer new and additional services to the market.

“We are not making changes because of technology innovation; we’re always looking into meeting customer demands for which technology innovation can be used,” she explains. Innovation is still a focal point for the exchange, she says, with in-house teams examining the potential of predictive analytics, memory databases and Blockchain technologies.

It’s clear that technology is viewed as a competitive differentiator for Deutsche Börse. As well as the July acquisition of 360T, the group also completed a deal for the Stoxx and Indexium joint-venture index providers from SIX Swiss Group in the same month, and Stars says there may be more to come.

“Going forward, we will see a combination of organic growth—we are well positioned with all the different initiatives we have running over the last years—but we will also compliment that with acquisitions,” Stars explains.

London Stock Exchange: Out with the Old
When you’ve been in business for over 200 years it can be difficult to take a new approach to changes in the market. London Stock Exchange Group (LSEG) faced such a point in 2009 when it sought to modernize and replace its existing trading environment.

As a result, LSEG acquired capital markets software provider MillenniumIT, which now operates as a subsidiary of the group providing exchange and infrastructure technologies to both LSEG and other clients globally.

Although primarily known for its work in equities, there will be further work done to enhance its post-trade product offering, with MillenniumIT being a lot more active in the derivatives space, says Mack Gill, CEO of MillenniumIT.

Closer to home, the company has been focused a lot more on market data, working on LSE’s Group Ticker Plant (GTP)—a system designed to harmonize data coming in from across LSE’s trading venues.

“MillenniumIT has been using hardware acceleration technology, including field-programmable gate arrays (FPGAs), that is going to underpin the new GTP market data dissemination tool,” says Gill. “There has been demand for a single point of access in the market, so that’s very much part of our future and direction in terms of where we are taking the platform.”

Like other market participants, the LSE is dealing with the raft of regulations that have hit the capital markets, which in turn is a major driver for the projects undertaken by MillenniumIT. Gill points to the work done with equities and derivatives trading platform Turquoise—for which MillenniumIT acted as the platform provider.

“The ability to trade larger blocks and reverse shrinking trade sizes is one of Mifid II’s core objectives,” he says. “The buy side has been very vocal about the desire to see that, and that’s exactly what the Turquoise Block Discovery service, underpinned by MillenniumIT technology, has provided.”

MillenniumIT now forms the foundation for the technologies adopted by LSEG and is expanding its global footprint with other exchanges around the world. So far in 2015 the company has inked deals with Canadian newcomer Aequitas NEO Exchange, India’s National Commodity and Derivatives Exchange (NCDEX), the Johannesburg Stock Exchange (JSE) and the Singapore Stock Exchange (SGX).

“There is a lot of legacy post-trade technology all over the world that is in need of a refresh,” Gill says. “Sometimes that is regulatory-driven, which provides an opportunity to bring in new technology to an environment that has been under-invested in for quite some time.”

Gill points to the post-trade system delivered as part of project undertaken with SGX as an example and states that MillenniumIT expects more of this type of business to be heading its way.

SIX Swiss Exchange: Simplicity, Reliability
No one ever said that operating stock exchanges was supposed to be easy. SIX Swiss Exchange has taken that to heart and is taking steps to reduce the complexity surrounding its technologies in a bid to promote simplicity and reliability.

Complexity within exchange systems can be seen as par for the course; however, acting interim CEO at SIX Swiss Exchange, Chris Landis, says that should not be case for those using the systems.

“I believe technology should be first and foremost two things: reliable and simple,” he says. “Stock exchange technologies are intrinsically complex. That is what we have been focusing on in recent years and will be continuing to do so—such complexity should not be visible to the outside world.”

Efforts to remove that layer of complexity can be smaller features like removing the possibility for self-matching, or more large-scale, such as allowing EuroCCP to clear SIX Swiss markets without having to change interfaces by means of adding standing instructions.

The ultimate purpose for SIX Swiss is always to create additional benefits for the end-user and reduce complexity while improving reliability beyond availability and performance.

While there is still a wave of hype surrounding new technologies entering the capital markets, “there is no disruptive technology lurking just around the corner that could revolutionize the market,” Landis says. “It’s only an advantage for a short-lived period …until others pick up on it. That said, it is only true to the extent that you don’t miss better hardware, models, or communications technology. If you miss one of those developments you may find yourself in a corner whereby you have to change in a rush to adapt. We’ve made it our habit not to wait.”

Landis says that although there is no doubt that technology is currently driving exchanges, changes to market structures and the impact of regulation are playing equally important roles.

As opposed to almost all other European exchanges, SIX Swiss itself will not be subject to regulation such as Mifid II or Dodd–Frank, but it will have to contend with parallel regulatory evolution in the form of the new Financial Markets Infrastructure Act that, to some extent, replicates Mifid II.

“The interesting task we’ll see is to harmonize and to care for both jurisdictions, not so much because we would be subject, but because our members are,” says Landis. “There’s also an indirect impact, such that through Basel or Dodd–Frank we believe that market economics and structures will change, and the way financial players conduct their business will change. That doesn’t sound exceedingly technical, but rest assured, it is.”