The new data marketplace will serve as the central hub for all of the exchange’s data products and services.

JSE has been on a digital growth journey, including digitising client contracting for index agreements and introducing Trade Explorer for member analytics services.

Having shifted its core data to the cloud, JSE is set to launch a virtual storefront allowing clients to purchase data online easily.

“JSE has developed a comprehensive cloud distribution platform with the intent of integrating all of its commercial information services under this cloud marketplace,” said Mark Schaedel, chief executive of DataBP.

“Together we have developed a dynamic product catalog and order configuration process which integrates with data licensing and automated data access.”

The marketplace will leverage DataBP’s platform to simplify client onboarding, make product development more efficient and automate data access entitlements and billing processes.

The data marketplace will also enable customers and redistributors to access a wide range of products, alongside hosting third-party content and analytics services.

“Migrating data offerings to the cloud is a key part of JSE’s Information and Communications Technology (ICT) strategy. It not only reduces infrastructure costs but also increases flexibility,” said Mark Randall, director of information services at the JSE.

“This offering marks the successful completion of the first phase of our market data modernisation strategy. Ultimately, the JSE aims to leverage cloud services to provide clients with analytics and insights, rather than just raw data.”

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Market data provider big xyt and the Johannesburg Stock Exchange (JSE) have announced the launch of big xyt ecosystems, a new joint venture company.

The joint venture will provide the Trade Explorer data platform, launched in South Africa earlier this year, to financial centres globally.

“We have created a new company as a joint venture because we believe that we have highly complementary capabilities,” Richard Hills, head of client engagement at big xyt, told The TRADE. 

“While big xyt brings a proven technology stack and domain expertise in the data analytics field, the JSE brings its knowledge of the needs of a financial market ecosystem and experience of providing very high service levels in the information service space.  The combination leads to a trusted partner for other exchanges seeking to acquire this capability.”

Trade Explorer allows trading venues to distribute data analytics solutions to information services clients, including trading firms, issuers and investors.

End users receive the solutions directly through web hosted services under the branding of a sponsoring venue, which the two firms state will mean rapid time to market and low cost of ownership.

Trade Explorer also offers analytics tools which allow users to understand market liquidity and flows, market share, business concentration and execution performance, alongside delivering tools for analysing trading patterns and for pre-trade decision support.

“All trading venues understand the need for a market data business adjacent to the core mission of providing high quality markets,” said Leila Fourie, chief executive of JSE Group.

“Innovative data analytics solutions form a major component of the future growth in this multi-billion dollar sector. big xyt ecosystems will empower our peers in other financial centres to develop this opportunity.”

The new joint venture will benefit from big xyt’s technology stack and experience with providing these solutions to the market, while JSE will bring proven use cases from its own marketplace as well as its peer network within the global exchange community.

“Trading venues can rapidly realise additional revenue streams by leveraging their unique data sets without making heavy investments in new technology,” said Robin Mess, chief executive and co-founder of big xyt.

“For market participants, this offers greater accessibility to data analytics for firms of all sizes as there is no longer the need to develop such capabilities in-house.”

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Speaking on a microstructure panel at the Johannesburg Stock Exchange (JSE) South Africa (SA) Trade Connect 2023 conference panellists from across the buy and sell-side agreed that the event is now the most crucial of the day, with those on the sell-side claiming that when an event happens, clients’ first concern is how it will impact the auction.

Running the show

Much like in Europe, the closing auction’s imprint is now being felt elsewhere throughout the day, drying up liquidity in the continuous markets and sparking volatility in the first hour of the day that makes clients reluctant to trade.

“The idea of the auction has changed, very few people care about the opening auction,” said ABSA CIB’s head of equity trading, Rufaro Mapanda. “The discussion is now around how much is going to be in the auction. It’s creating friction trying to forecast what a stock is going to do.”

“Fundamental news will come in at 3 o’clock and the first thing clients want to know is the impact on the auction. The auction is driven by volume changes based on the news and then the next day the stock settles to where it should be following the news.”

South African markets have previously toyed with the idea of opening earlier to ensure they don’t miss the opening of other markets including the UK and Europe, but thanks to the growth of the Close this is no longer relevant.

“Opening hours are irrelevant. We’ve moved so far away from that because the focus is on the close, which is artificially created,” added Mapanda.

This trend is not unique to South Africa and is now most exaggerated in the European markets; where 30% of the day’s volume now goes through the close. The US and Asian markets have seen some growth but not to the same extent – although, as pointed out by BMLL’s chief product officer Dr Elliot Banks, the NYSE Closing Auction remains the global markets’ biggest equities event.

Read more – The TRADE Close Roundtable: Episode 1 – Drivers of growth

“With less liquidity in the continuous lit markets, the amount of price formation is reduced and participants therefore need to trade more in the auction,” said Adam Bunkell, head of equity markets at Saniam Private Wealth.

“But flow that is looking to access that closing price is not agnostic, if a benchmark is being affected by the Auction the passive flows don’t want to trade at the wrong price. Data shows prices remedy very quickly in the markets that trade after the Close. The challenge for order owners is how do you insert that order without ensuring your price impact is minimised.”

Data is essential

Panellists from across the buy and sell-side, as well as data vendors, were unanimous in the need for data as a means to help institutional investors understand and navigate the Close.

“The most essential information is when price formation happens. Participants initially are just chucking orders in. Last year Carrefour was priced at 49 levels during one Auction. When does the price formation actually kick in and how do you know which the best price is?,” added Banks.

“Learning more about the price discovery process in this period is essential for traders. They also need data on other trading mechanisms as well. It’s worth stepping back and looking at other auctions such as periodics.”

Other key data sets noted by panellists were the differing publishing rules of different primaries in order to decide upon which Closing Auction to use and the levels of addressable liquidity, something European regulators are trying to get under control.

“If you reference the Auction, you might as well reference the benchmark and that benchmark relies on the integrity of data,” said Alphonso Raats, head of equity and derivative trading at Stanlib.

“You need to unpack the dynamics of the Auction and to define best execution. But if you give everyone the same weapons not everyone is going to win the war.”

The post JSE SA Trade Connect 2023 on the growing closing auction: ‘If you give everyone the same weapons in war, not everyone is going to win’ appeared first on The TRADE.

Historically the market has been dominated by one primary venue, the JSE, and alternative MTF A2X, while others have tried and failed to make a dent in this market. But regulators and participants predict this could be about to change.

The prediction has sparked debate around whether South Africa has the liquidity or regulatory framework to support multiple venues, what potential fragmentation and competition will do to markets, and most importantly, how regulators and institutions alike should define and achieve best execution.

“We’ll likely align with EU regulators, the question is where. We need a single rule to apply to the market across exchanges that is consistent. It’s not only about price, but also about outcome,” said Astrid Ludin, deputy commissioner at the Financial Sector Conduct Authority (FSCA).

Other panellists agreed best execution is not just about price but also about getting the best outcome for clients by finding liquidity and minimising cost of execution.

“We currently sell best execution,” said Alexis Van Zyl, electronic trading at Investec. “It’s about taking a simplistic view and doing as best as possible to reduce implementation costs as far as possible.”

Fragmentation

Best execution relies on options to be compared and contrasted with one another, and the discussion around defining and applying best execution signals an appetite from institutions and regulators for a new venue in the region.

The question is whether the market currently has capacity or the regulatory set-up for a new primary exchange and what new competition could do to liquidity? Others have tried and failed in recent years to make waves in this market, namely stock exchange ZAR X, which had its exchange licence suspended in 2021 by the FSCA over liquidity and capital adequacy concerns.

“The JSE as the only primary venue is currently somewhat self-regulating because of the set-up,” Van Zyl told The TRADE. “They have done a great job of facilitating the market.”

But change is on the horizon and the FSCA is currently undergoing an ambitious two-fold regulatory agenda through the Financial Markets Act and Conduct of Financial Institutions Bill covering clearing, dark pool and high frequency trading and regulatory architecture.

“Whether or not South Africa is big enough for another venue, I don’t know, but questions are increasing not only around that but also around block finding and matching capabilities,” added Van Zyl. “Who knows what the market will look like in three years.”

Panellists agreed if done correctly, fragmentation in South Africa would be a positive addition to the market.

“Competition reduces the cost of trading. It could also see different participants entering the market,” said Citi’s EMEA head of platform sales, Joseph Sidibe.

“It’s important to ensure there is enough transparency but price formation fragmentation if done in the right way would be beneficial. Look at the US and retail, front-to-back efficiency allows retail to take part in the markets.”

Lessons learned from Europe

Those representing the European front on the JSE SA Trade Connect panel erred on the side of caution: highlighting the significant fragmentation that the bloc now suffers from amid daily volumes that haven’t really changed in the last five to six years.

In contrast to the market in South Africa, the European markets now play host to a plethora of primary venues across its 27 member states and alternative MTFs, including Cboe, Turquoise and Aquis, that compete with them for the somewhat stagnant flow.

“We now have a good system in Europe where you can trace best execution to the micro and mili-second despite the fragmented structure,” said big xyt’s head of client engagement, Richard Hills. “That process is being imported to South Africa already, as a Mifid broker has the same obligation trading anywhere.”

Mifid regulation was designed to push more volumes onto the continuous lit markets but has instead seen average daily turnover continue to decline in recent years. The growth of the passive segment has intensified this by encouraging volumes into the Closing Auction, a global trend that has become most pronounced in Europe.

“South Africa has to leverage and learn lessons from Europe and capitalise off the back of it,” concluded Sidibe.

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JSE data across equities and ETFs will now be included in BMLL’s data coverage, with the exchange using BMLL’s Level 3 data and analytics for cross-venue analysis, offering participants market structure and performance metrics insights.

In Q4 2022, BMLL secured $26 million in a Series B investment round, which saw the firm set out its strategy to enhance its data sets globally and to incorporate these into existing products and analytics capabilities.

The addition of JSE data sets complements BMLL’s coverage of over seven years of data across global equities, ETFs and futures, spanning more than 65 trading venues.

Read more: BMLL raises $26 million to finance North American expansion

 “As Africa’s largest stock exchange, analysis of what influences liquidity dynamics and market share across different trading sessions and securities on our exchange is critical. With the analytics capability provided by BMLL we are able to carry out cross-venue market analysis,” said Langa Manqele, head of equities and equity derivatives at the JSE.

Using BMLL’s data and analytics capabilities, the JSE will be able to evidence execution against a global peer set and provide its members with third-party, independent verification on the availability of liquidity on its own venues compared to other exchanges.

JSE will also be able to back-test, analyse, build and test new products and features using the BMLL Data Lab.

“Our customers constantly demand more data sets from us, to analyse market moves and spot predictive trends. Adding the JSE’s data to our offering will help meet these customer needs,” said Paul Humphrey, chief executive of BMLL.

“At the same time, we are proud to deliver BMLL Level 3 Data and analytics capabilities to JSE to give them a deeper understanding of venue, liquidity or execution quality and unlock new trading opportunities.”

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