The SWX Swiss Exchange and its London-based securities exchange virt-x announced plans to upgrade its trading technology for speed and capacity.
The new platform will offer 10 times the current capacity and 10 times the current level of speed and could help cut users' costs, the Swiss exchange said on Thursday.
SWX declined to reveal the cost of the new platform, but Jim Gollan, chairman of virt-X, said it would be based on Computershare's X-stream central exchange technology, which SWX has also used for trading in warrants and structured products.
The Swiss bourse hopes to capitalise on an increasingly automated market, by assisting algorithmic trading and direct market access (DMA) that is increasingly popular in investment circles as a way of replacing the human trader with machines to reduce costs and improve control.
Algorithmic trading is an electronic trading order that uses an algorithm to determine certain aspects of the order such as the timing, price, or the final quantity. DMA is a way for traders, asset managers and hedge funds to route an order directly to an execution venue, such as an exchange, without having to go through a brokerage firm’s execution desk. This increases the speed of execution. Demand for DMA and algorithmic trading has been driven by several factors, including better control, anonymity in the market, speed of execution and cost savings.
This upgrade by SWX will also reposition its trading platform ahead of the introduction of new European regulation Markets in Financial Instruments Directive (MiFID), which comes into effect 1 November. MiFID is tipped to dramatically alter the stock exchange landscape, as it allows investment banks to create alternative trading venues that will compete for business with traditional exchanges. A group of Europe's largest investment banks have announced plans for a low-cost trading system, dubbed Project Turquoise, which aims to take on existing bourses.
Gollan agreed that the upgrade was, in part, driven by MiFID, as it will "improve opportunity for best execution, which is a requirement under MiFID for our customers and it will help the exchange to keep pace with developments".
He added that most incumbent traditional exchanges are looking to improve their trading platforms, to provide more capacity and speed for automated trading, and to reduce costs. These efficiencies, in turn, help investment banks to meet MiFID requirements.
The platform is to be delivered in four phases over a three-year period. Trading of international bonds will start today, and equity trading will follow by the summer of 2008. Phase two calls for new industry standard interfaces for order routing, trade reporting and market data to be delivered next year while the migration of off-book services and trade processing will take place in 2009 and 2010.
In addition to the additional capacity and speed, SWX is also reviewing its tariff structure for 2008.
Other European exchanges have also boosted technology projects for MiFID and the push toward automated trading. Last month the London Stock Exchange (LSE) launched its Tradelect platform, which is intended to increase capacity at the exchange five-fold, speed up order processing and capture more orders from hedge funds and investment banks running algorithmic trading systems.