The New York Stock Exchange and Deutsche Borse are planning a move to a single cash equities trading platform, understood to be based on Red Hat Linux, in a crucial step towards saving €79 million (£64 million) in annual IT costs and delivering robust, fast messaging.
If the merger goes ahead, the exchanges will also integrate “complementary” derivatives businesses, and combine their US options platforms. The savings represent 26 percent of the €300 million total planned cost cuts, which also include more efficient clearing and market operations.
The companies declined to confirm exact supplier plans, but both run their matching engines on Red Hat Enterprise Linux and the system is understood to be seen as the most likely backbone for the proposed single trading system. Several market sources confirmed the exchanges would be inclined for Red Hat systems to take a central position in the exchanges' merged infrastructure.
The news comes as NYSE rejected a rival bid from NASDAQ, which in its proposal heavily criticised the Deutsche Borse bid and claimed the German exchange did not have a good history of integrating technology.
As Deutsche Borse sought to proceed with its own takeover attempt, it and NYSE Euronext filed an 894 page merger document with the US Securities and Exchange Commission, detailing how the merger would work in practice. The savings would be achieved over three years, the companies said, but they warned of the challenges in retaining top IT managers.
The exchanges said they may also consider a single platform covering both equities and derivatives – if not, derivatives would have its own single platform. The goal would be “maximising” savings and improving efficiency for traders.
IT is high on the agenda at both firms. At Deutsche Borse, approximately a third of employees work in IT, and in the last few years each of the two exchanges has spent heavily on moving to its own single trading platform.
Last year, Deutsche Borse began migrating remaining Unix-based IT systems to Red Hat Enterprise Linux, which “increased system performance and enhanced flexibility, while also reducing operating and maintenance costs”, they said.
The exchange’s unified trading system was “brought to production readiness, combining “selected open source software components with third-party programs and software that has been developed in-house”. Its main matching engine, Xetra, runs on Red Hat Enterprise Linux-based servers and uses the IBM WebSphere MQ Low Latency Messaging system.
NYSE Euronext is moving its matching engine technology over to its Universal Trading Platform, which itself is based on Red Hat Linux running on x86 servers. The platform offers 150 microsecond latency, and can process up to 100,000 messages per second. The company wide move will be completed this year.
The move to the Universal Trading Platform “involves several upgrades to NYSE Euronext’s current architecture, using technologies acquired through strategic initiatives and acquisitions”, the companies said. It also involves the “implementation of a common customer gateway and market data system to enable market participants globally to access NYSE Euronext’s markets, products and services via a common architecture”.
NYSE has closed a raft of datacentres, shifting European matching engines into a new 315,000 square foot data centre in Basildon, Essex. It also has a 400,000 square foot data centre in Mahwah, New Jersey, for US trading.
“The combination of Deutsche Borse Group and NYSE Euronext brings together two industry leaders, each possessing world-class technology with a strong track record of integrating and realising cost efficiencies,” the companies said in the merger document.
“To enable high frequency trading for sophisticated investors, execution times of trades have to be competitive with other trading platforms,” they said. “The availability of IT systems and prevention of IT processing errors are key quality issues demanded by customers.”
The combined company would “have access to a technology base consisting of major data centres in the United States, the United Kingdom and Continental Europe, a far reaching network infrastructure, and successful trading, clearing, settlement and custody systems such as Eurex, Liffe Connect, SFTI, OptimISE, the Universal Trading Platform and Xetra”.
IT would be based in New York, with other technology offices in London, Belfast, Frankfurt, Luxembourg, Paris and Prague. NYSE Euronext head of technology Dominique Cerutti would be appointed as president of the combined group, as well as running its systems.
There were however risks in the merger, the companies warned, including possible regulatory concerns and potential challenges integrating the platforms.
They said: “There is a shortage in the employment market for specialists in the information technology field, and Deutsche Börse Group and NYSE Euronext compete for employees with a large number of other enterprises in the information technology industry.” Success would depend in part on the ability of the combined companies “to attract and retain management personnel and other key employees”.