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

Introduction

The market for exchange services has become increasingly competitive in Europe, while the US has already seen consolidation. This report considers the drivers for lower latency and guaranteed throughput for access to matching engines, while at the same time surveying the landscape and assessing the potential for US-style consolidation in Europe.

Scope

*Exchange technology

*The business side of exchanges; M&A activity, etc..

Highlights

The backdrop to the evolution in exchange technology is a proliferation of trading venues, resulting in a fragmentation of liquidity across them, to which a growing number of buy- and sell-side firms respond with the adoption of high-frequency trading (HFT) strategies underpinned by algorithmic servers.

Reasons to Purchase

*Gain an insight into how the exchange sector is evolving annd the role technology is playing in the process.

*See where the opportunities for independent tech vendors are in this sector.

Report Highlights

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Overview 1
Catalyst 1
Summary 1
Key Messages 3
More competition among trading venues is on the way 3
Investment in exchange technology continues apace 3
Trading venues have become technology vendors too 3
Latency and throughput drive matching engine development 3
Market surveillance has to keep up with faster matching engines and greater order volumes 3
Clearing relies on risk management; settlement is about managing multiple accounts 3
Opportunities for technology vendors differ from small to large venues 3
Table of Contents 4
Table of figures 6
Table of tables 6
MARKET OPPORTUNITY 7
More competition among trading venues is on the way 7
Investment in exchange technology continues apace 8
Trading venues have become technology vendors too 9
Technology Evolution 10
The driver in exchange technology is to do more in less time 10
The drivers for matching engines are latency and throughput/scalability 11
Market surveillance systems need to keep up with the matching engines, multiple assets and venues 12
Clearing and settlement require good risk analysis and records management 12
Opportunities for technology vendors differ from small to large venues 12
There are also opportunities to sell surveillance technology to regulators 13
Customer Impact 14
Latency and throughput drive matching engine development 14
Hardware acceleration has not made it into matching engines 16
Market surveillance has to keep up with faster matching engines and greater order volumes 17
Clearing relies on risk management; settlement is about managing multiple accounts 18
Competitive Landscape 20
Trading venues which develop and sell their own technology 20
NYSE Euronext 20
NASDAQ OMX 21
Deutsche Börse Group 21
London Stock Exchange 22
Financial Technologies (India) 22
Chi-X Global 23
ISVs offering exchange technologies 23
Cinnober 23
Patsystems 24
Smarts Group 24
Progress Software 24
List Group 25
Fidessa 25
Quod Financial 25
Go to Market 26
Recommendations 26
Determine which type of trading venue you want to target 26
Depending on the geography you target, you may need to put in local support staff 27
Smaller vendors may need to partner with a credible SI to win larger deals 27
APPENDIX 28
Definitions 28
Central counterparty (CCP) 28
Central securities depository 28
Dark pools 28
MiFID 28
RegNMS 29
Code of Conduct for Clearing and Settlement 29
Smart order router 29
Alternative trading system (ATS) 30
Electronic communication network (ECN) 30
Multilateral Trading Facility (MTF) 30
Methodology 31
Further reading 31
Ask the analyst 31
Datamonitor consulting 31
Disclaimer 31
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List of Tables
Table 1: Latency and throughput rates 15
List of Figures
Figure 1: How data flows in a trading environment 11
Figure 2: Market structure for clearing and settlement in the US and Europe 18
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