The JSE is set to offer co-location services to its members and their clients, to trim the time it takes to execute trades.
In February, the bourse said it was implementing new systems to improve trading speeds by about 40 times. The JSE signed a licensing agreement with MillenniumIT to move its equity market trading activity onto Millennium Exchange. Migration is planned for the first half of 2012.
As a result of the agreement, the JSE's trading system will be relocated from London to Johannesburg in the first half of next year. Currently, trades are sent from Johannesburg to the London Stock Exchange to be settled.
The new system creates a potential new source of revenue for the bourse, as it will enable co-location services.
Better stability
JSE COO and head of the equity market Leanne Parsons says the primary motivation behind the move from London to Johannesburg is to improve operational stability by eliminating trading outages related to international connectivity links. However, she adds it also opens up the possibility of additional services, such as co-location.
In the middle of last year, a technical issue with international connectivity resulted in the bourse opening an hour-and-a-half late for trade. In July 2008, the bourse was hit by a network issue, which delayed the opening of the market until 3pm.
Parsons explains “speed is becoming increasingly important in the exchange industry. Those exchanges that are able to offer the lowest latency will retain and grow market share.” She adds “the decision to offer co-location services is in response to the need of certain clients to offer low-latency trading and reduce connectivity risk”.
Co-location allows trading firms to place their computer servers near an exchange's matching engine, to trim the time it takes for messages to be sent to and from the trading engine. This shaves microseconds off trading times and reduces bandwidth requirements.
The exchange is upgrading and enlarging its existing data centre to enable co-location. Parsons expects higher volumes as co-location will attract a new segment of clients.
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