Specifically, Beeks’ Exchange Cloud service is being deployed to the centre to enhance dual location disaster recovery capabilities. The move is in collaboration with e-trading solutions provider IPC. 

Tebalo Tsoaeli, chief innovation officer at the JSE, asserted that there has been clear demand for a secondary solution which specifically addresses redundancy and disaster recovery needs. 

“Since the launch of Colo 2.0 in September 2023, JSE has seen significant adoption of the Colo 2.0 service by customers […] Through our partnership with Beeks and IPC, JSE seeks to power a truly cloud-based marketplace infrastructure that is modern, hyper-scalable, ultra-resilient, highly performant, and accessible to all market participants.”
 
Through this move the JSE has enhanced the speed at which it can meet the market and regulatory demands of large financial institutions. 

The expansion comes after the successful launch of Colo 2.0 in September 2023. 

Gordon McArthur, chief executive of Beeks, said: “Exchange Cloud continues to be a unique offering in the market, and the success of the solution at the JSE is supporting our discussions with other global exchanges, underpinning our confidence in continued momentum.”

Cloud partnerships with major exchanges are a trend which is only increasing in pace, with some of the biggest movers in the space including Google, Amazon Web Services (AWS), and Microsoft.

Read more: As cloud adoption across the market continues to rise, is the shift of liquidity itself next to follow?

In addition, regulators globally are continuing to pile the pressure on exchanges to maintain the stability and resilience of the financial markets. Some significant events so far this year has seen major trading disruption events and led to calls from all corners of the capital markets sphere for stronger infrastructure.

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The new capability is based off Instinet’s proprietary technology and went live in mid-October. It is initially covering vanilla flow such as direct market access (DMA) and algo trading, with potential plans to move into blocks and more complex flow in the future.

Salvador Rodriguez

Under the set-up, clients will send Instinet an order which the firm will then smart order route to either JSE and A2X. 

Speaking to The TRADE about the launch, Instinet’s EMEA head of global execution services, Salvador Rodriguez, said the move is designed to support both local and international investors looking to source better liquidity through greater diversity of venues, as well as build out infrastructure in the market.

“From our perspective as a technology provider, making the local market more efficient for the local participants was a key part of the decision. The feedback we’ve had is that a lot of local participants are crying out for more diversity of venue,” he said.

“But also from our own client base perspective, it gives them the tools that they require to access the different liquidity and price opportunities that may exist through the competition that’s being introduced.”

Read more – JSE SA Trade Connect 2023: Will South Africa follow Europe when it comes to best execution?

Historically, the South African market has been dominated by the JSE as the incumbent venue. Alternative trading platform for listed securities, A2X, launched into the market six years ago as the first real competitor to the JSE and has seen its trade value grow from R657 (almost $35 million) in its first year, to R75 billion (roughly $4 billion) six years later.

The venue’s rapid journey of growth is evidence of demand for greater competition in the venue space within the region. 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 lack of market fragmentation was a key theme noted by panellists at the JSE SA Trade Connect conference that took place in Cape Town in February, exploring whether or not the region should follow suit with Europe – where there is arguably too much fragmentation – and how institutions could prove best execution without a wider choice of venue.

Rodriguez confirmed more diversity of venue and liquidity would likely boost more international interest in the region.

“A lot of the international global asset managers based in EMEA are more accustomed to smart order routing. They’re accustomed to multiple exchanges and many different order types,” he said.

“Why wouldn’t you have liquidity on another venue and engage with it. It opens up further opportunities with regards to exploring more relationships with other participants – having something that allows you in a quick efficient and automated manner to access those opportunities efficiently is essentially the core of the smart order routing.”

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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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Johannesburg Stock Exchange

Johannesburg Stock Exchange (JSE), the largest stock exchange in Africa, is the first bourse to come to market with a new information service from smart data and analytics provider big xyt. 

Leveraging big xyt’s Liquidity Cockpit for security analytics, the new service uses peer group rankings to help trading firms explore their market share, examine how they interact with the order book, and view their trading performance. The tools should assist client-facing staff to discover new and granular information about their trading flows to improve their algorithms and update their trading strategies.  

The platform, named JSE Trade Explorer, claims to be the first of its kind in the exchange space. It will be delivered directly to trading participants of the exchange’s cash equity and ETF markets (including the exchange’s members and their clients, and eventually issuers) under a white labelling arrangement.  

“Our clients are increasingly aware of the importance of data analytics and are hungry for solutions that can deliver trusted and actionable support to their own bottom line. This is an opportune time to introduce this service to our clients, as we believe it will help our member firms to promote their competitive advantages and unique selling propositions,” said Mark Randall, director of information services at the JSE.  

“The increase in the quantity and complexity of data globally is a major challenge for our members and broader participants, both in terms of the cost of development and the delivery to end users. We also know that every exchange has a unique dataset that helps participants to understand their competitive strengths, in terms of liquidity and trading quality. We set ourselves the challenge to make this dataset highly accessible, at an affordable cost and with very fast delivery,” he added.  

“At the JSE we see the value that we can bring to our clients by providing high quality and readily accessible market data, particularly through modern cloud channels. We believe that this new service, in collaboration with big xyt, is an innovative but natural progression to providing trusted analytics.”  

It’s been a big week for data platform launches. Yesterday, BMLL announced a new collaboration with pan-European equity trading exchanges operator Acquis Exchange to provide insights into market structure dynamics, including venue quality and liquidity dynamics; while on the fixed income side, Deutsche Börse this week partnered with Clearstream to launch a new bond liquidity data platform.  

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The London Stock Exchange Group’s FTSE Russell has expanded its long-standing partnership with the Johannesburg Stock Exchange (JSE) to launch a series of co-branded of fixed income indices.

As part of the agreement, FTSE Russell will act as the benchmark administrator for JSE’s fixed income indices and provide daily index calculations on the FTSE/JSE All Bond Index Series, as well as the FTSE/JSE Inflation-Linked Index Series.

The new indices represent the performance of South African government, state-owned and corporate bonds, which both parties said offer investors multi-asset capabilities across South African capital markets.

“FTSE Russell aims to be the world leader in multi-asset indexing and now, domestic and overseas investors in local South African debt are able to benefit from FTSE Russell’s robust, transparent and objective approach to managing fixed income benchmarks,” said Waqas Samad, group director of information services at LSEG, and CEO of FTSE Russell.

FTSE Russell and JSE have been working together on providing equity indices since 2002, and agreed to branch out into fixed income indices in 2017. The partnership combines JSE’s regional expertise with FTSE Russell’s governance framework to provide objective investment services.

“Our partnership with FTSE Russell has seen local and foreign investors in stocks listed on our markets benefit from the expertise of an independent global index provider for almost twenty years. Today’s launch extends these benefits to corporate and government bond investors and will improve international access to our debt markets,” added Dr Leila Fourie, CEO of JSE.

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Beyond the assessments of local political and economic potential, much of the JSE Trade Connect conference in Johannesburg on 22^nd and 23^rd October was taken up with addressing issues that will be familiar to participants in major markets.

One, for example, dealt with making the most out of data, reviewing the role of distributors and the use of data by subscribers in an increasingly complex world. Here participants and panellists confirmed that they are dealing with the same data issues as other developed markets.

A session on regulatory developments on the first afternoon painted a picture of robust oversight and surveillance of South African markets. Alwyn Fouchee, head of regulatory compliance issuer regulation at the JSE outlined the actions of his department in reviewing listing criteria in the wake of a number of corporate scandals, resulting in the publication of a white paper in September 2018. Following feedback, the JSE expects to publish new rules by the end of the year, reinforcing, inter alia, reporting obligations  on JSE-listed firms

Fouchee stressed that, “The JSE is not a lone ranger in regulation.” Shaun Davies, director of market regulation at the JSE, explained the use of market surveillance techniques to spot unusual trading behaviour. “The public need confidence that any market abuse is dealt with,” he insisted.

Beyond the exchange itself, Brandon Topham, investigations and enforcement divisional executive, FSCA, the market conduct regulator of financial institutions, noted that the JSE is very good at detecting when something was amiss. “We then investigate.” He suggested that in future, AI could do some of that work. The FSCA meanwhile cooperates with other regulators abroad to ensure best practice. “We’re not worried about innocent mistakes,” said Topham. “We go after criminals, using raids where necessary.”

Another session reflecting global trends covered developments in the area of responsible investment. Panellists suggested that was need was a change in mindset with regard to the purpose of such investment.There needs to be a recognition that non-financial factors can have financial impacts and that, put simply, investment institutions have an obligation to bear in mind the state of the world into which their end-clients, such as pension fund scheme members, will be retiring.

On local market conditions, It would be fair to say that veteran South African journalist Karima Brown pulled no punches in her address. Despite the aspirational reference in its title to government and business leaders forging ahead together she suggested that a number of local actors had yet to be called to account for their role in dampening the current mood. That said, there was a way back to positive growth offered by Deanne Gordon, head of equities strategy at Standard Bank. To a large extent this involved completing initiatives already under way such as an eVisa programme to boost the tourism sector.

Overall, delegates left the event having engaged in a series of informative and realistic encounters. Following closing remarks by Merlin Rajah, business development manager, electronic trading at the JSE, who oversaw the organisation of this inaugural event, a number of delegates suggested they were firm candidates for attendance in 2020.

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The conference was opened by Dr Leila Fourie, recently appointed group CEO, who returns to the JSE after several years in Australia in a range of senior executive positions in financial services. She pointed out that to survive, an exchange needs to keep moving forward, be resilient and “able to take a few knocks”

Taking a 10-year view, she noted that the JSE has produced impressive growth figures in terms of market cap and turnover as well as global connectivity and conformity with IOSCO infrastructure principles. She mentioned specific challenges of liquidity and making the JSE a destination of choice for both domestic and international listings as well as the broadly shared challenge in the global financial services industry of rebuilding trust.

The global context of market structure developments was addressed by keynote speaker Niki Beatie, founder and managing director of London-based Market Structure Partners, who argued that all markets need to reinvent themselves to flourish in the ‘information age’ now beginning.

Following demutualisation of exchanges in the 1990s, a developing trend was for those who provided flow to seek greater control, leading to the launch of alternative trading venues. Regulatory change has since led to further disruption though the pace of regulation is not always compatible with market developments, Beattie suggested.

The first wave of algorithmic market makers is now maturing, said Beattie, while differentiation in HFT strategies is becoming more evident. “Trading strategies using AI are already being deployed, but the hardware costs are substantial, acting as a barrier to entry and making economies of scale imperative,” she said.

At the same time, alternative data sets, including, for example, satellite views and real time payment data are being interrogated for insights into investment decision support.

Beattie also pointed to new technologies likely to have an as yet undefined impact. These include open banking APIs and distributed ledger technology, particularly its enablement of tokenisation. Even traditional IPOs are changing, she asserted. Spotify for example, cut out intermediaries in its direct NYSE listing in April, since deemed a success.

Inevitably, regulation has acted as a catalyst to change. Beattie acknowledged the focus of regulators on transparency in pricing and fees, but suggested that technology and data are more difficult for regulators to get to grips with.

“Ideally, we need regulators to see the bigger picture rather than focusing simply on microstructure,” she concluded. Rather than examining the furnishing of individual rooms, she suggested, “It would be good for them to view the house from outside to make sure the entire building looks safe.”

Attention then turned to the economic environment, both local and global, in which securities markets operate. A panel on the broad economic outlook for South Africa brought a note of sobriety to proceedings with a collectively downbeat assessment of the state of the South African economy, particularly with the challenges of a potential global recession.

“Growth will have to be generated internally,” said Isaah Mhlanga, chief economist, Alexander Forbes Group. Panellists agreed, however, that not enough is being done to strengthen state-owned entities, such as Eskom, South Africa’s electricity utility, that has embarked on an economically debilitating programme of load shedding.

There was general recognition of a lack of dynamism in the South African economy today with any political intervention to stimulate growth unlikely to have a short-term impact. While panellists did not expect a downgrade from Moody’s in the coming month, they appeared resigned to a negative outlook assessment.

Macro factors therefore contrasted with assessments of the robustness of the securities market ecosystem in South Africa. In perhaps the most optimistic presentation of the morning Stuart Theobald, chairman, Intellidex, a research and consulting house, outlined how South Africa could capture an opportunity as a regional financial centre.

Outlining three broad frameworks, he identified externalising financial centres, such as NY and London, acting as conduit for local funds to invest in other markets, intermediating financial centres, such as Mauritius and Dubai, attracting flows from abroad to reinvest in other markets across the globe and internalising financial centres such as Hong Kong, primarily investing inflows locally.

South Africa, he suggested, could play a role in the second category, though a gap in infrastructure as far as clearing and settlement of non-ZAR denominated assets would need to be filled.

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The Johannesburg Stock Exchange (JSE) has gone live with a new trading platform from LSEG Technology for its equities and FX derivatives markets.

JSE has confirmed its equities, equities derivatives and FX derivatives markets are now running on the Millennium Exchange platform, which offers implied-order trading, a host of multi-legged trading strategies and options theoretical pricing capabilities for derivatives markets.

The move is part of an ongoing upgrade project for the JSE’s equity market and will be accompanied by the Millennium Surveillance solution for real time cross-asset class monitoring.

“The successful launch, of what has been part of a multi-year project, enables our products to trade on robust technology using world class functionality, which we expect will enable our clients to lower their costs of trading,” said Nicky Newton-King, chief executive of JSE. “The move aligns JSE to global best practices and strengthens our position as a global market player, providing more stable and efficient services to our clients. 

Earlier this year, JSE implemented Nasdaq’s clearing technology platform for its equity and currency derivatives market.

JSE said at the time that the launch is part of a multi-year project focused on migrating all of its markets to Nasdaq’s clearing platform for more efficient collateral management, intra-day risk monitoring and increased margin transparency.

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In a statement, the JSE said that the launch is part of a multi-year project focused on migrating all of its markets to Nasdaq’s clearing platform for more efficient collateral management, intra-day risk monitoring and increased margin transparency.

Equity and currency derivatives markets at JSE are the first to be migrated to the platform as part of the project, known as ITaC, which is being delivered in phases.

“The launch of our new clearing platform is an important milestone in our aim to align ourselves with global best practices using a state of the art, multi-product technology solution,” said JSE’s CEO, Nicky Newton-King. “Technology has become vital for clearinghouses in offering services that stand up to market participants’ and regulators’ demands on robust risk management, transparency and efficiency.”

Nasdaq’s market technology is used by more than 250 market participants, including broker-dealers, exchange operators, clearinghouses, central securities depositories and regulators in over 50 countries.

“The Johannesburg Stock Exchange plays an important role as the leading African exchange and a prominent global player,” added Michèle Carlsson, managing director and head of business development for Middle East and Africa at Nasdaq.

“JSE’s scalable and highly robust clearing solution makes them set for continued growth, innovative product development and compliance with evolving regulatory requirements. We look forward to continuing our journey and long-term technology partnership with them.”

Earlier this month, Nasdaq promoted one of its most senior executives to president of European markets in a newly created role, as the exchange operator targets growth in the region. Bjørn Sibbern will be responsible for managing trading, clearing, settlement and data divisions in Sweden, Denmark, Finland, Iceland and the three Baltic countries.

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Both exchange operators signed an agreement to introduce the platform, which will be powered by the LSEG’s fixed income trading business MTS, in the region to increase global access and transparency in the South African government bond market.

The platform went live with nine primary dealers signed up as liquidity providers, including Citibank, JP Morgan, HSBC and Deutsche Bank.

MTS was chosen by the JSE to provide the technology behind the platform, the LSEG said, as well as operational services and monitoring of primary dealers obligations for the new marketplace. It will be operated by the JSE in accordance with local regulations.

“Over the past 30 years MTS has built unrivalled experience and expertise across 20 fixed income markets in Europe,” said Angelo Proni, head of new markets at MTS. “A key element of MTS’s strategy for the future is taking that experience to an international level and helping more markets access the benefits of electronic trading.”

Mondli Gungubele, deputy minister of finance in South Africa, added that the launch of the platform is testament to what can be achieved when government and the private sector work together. A variety of stakeholders, including MTS, the nine primary dealers, the World Bank, the South African Reserve Bank and Central Securities Depository (CSD) participants have contributed to the project.

“The use of electronic trading platforms has shown notable positive effects in the secondary markets including: improved liquidity through price discovery; reduced transaction costs and greater competition; increased transparency, and; lower trading costs,” Gungubele concluded.

The LSEG recently expanded its corporate bond trading platform with the addition of list trading as a function. The list trading option will allow traders to execute multiple trades simultaneously against more than $17 billion of resting corporate bond liquidity on the MTS BondsPro platform.

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