COMPUTERSHARE MARKETS TECHNOLOGY
THE TECHNOLOGY CHALLENGE FOR
EMERGING MARKETS
Philip Haynes
Chief Technology Officer
The advanced
financial markets
systems of
Computershare are
flexible, scalable and
use the latest, proven
and open technology
to ensure reliability,
performance and
accessibility
Without pause for breath after the initial
successes of establishment and automation
behind them, emerging markets are now
looking to address new challenges. While these
successes have been substantial, at the same
time, the international financial market place has
changed rapidly. With the pace of change
showing no sign of diminishing, emerging
markets are being challenged further than might
have been expected.
Electronic markets are now accessible from
anywhere on the globe and the increasingly free
movement of capital means that even emerging
markets are feeling pressure from foreign
markets, competing for listings of larger
companies. Alliances and commercial
groupings of European exchanges,
consolidation of clearing and settlement
organisations, EC directives towards
harmonisation both within the EU and with US
markets have hardly provided a stable
environment for emerging markets to study or
emulate.
Without doubt, the drivers of change are
privatisation (or demutualization) of exchanges
and technological advance. Demutualisation
has focussed larger exchanges upon growth
outside their traditional sphere and technology
has opened borders and broadened product
offerings. Technology provides a key challenge
and opportunity for emerging markets.
THE CHALLENGES
Amongst the very real challenges facing
emerging markets in the next decade are:
• Improving liquidity through connectivity to
other markets with excess capital
• Harmonisation of market structures with
trading partners
• Better serving the needs of local markets
with improved product offerings
• Lowering the overall cost of ownership of
technology without compromising this
innovation
• Improved credibility with better market
design, improved surveillance and
transparency
CONTACT INFORMATION
Contact Name
Mr. Andrew Hamilton
Marketing Executive
E-mail
[email protected]
Website
www-uk.computershare.com
In 1999, the FIBV in “Three Business Models for
The Stock Exchange Industry”* identified three
different categories of exchanges namely;
• global Exchange
• regional Exchange
• diversified Exchange
a division that is based upon the capital raising
and allocation role for companies with global or
regional focus of activities or their need for
diversified financial products. This
characterisation remains relevant. The majority
of emerging markets, to start with at least, fall
into the Regional Exchange category, but their
objectives and development into another
category will determine the overall success of
the exchange.
EMPOWERING EXCHANGES WITH
TECHNOLOGY
As a market establishes itself, the surrounding
capital markets also develop. In time, this will
lead to several expansion pressures, either;
external pressure like competitors coming into
the market to offer competing services or
FEDERATION OF EURO-ASIAN STOCK EXCHANGES YEARBOOK 2003/2004
PAGE 16
internal pressures from the market itself to offer
a richer set of products to trade or different
ways of trading them to improve the price
discovery process across all sectors of the
market. Beyond the simple competitive
pressures, exchanges are increasingly viewed
as normal businesses and, as such, there is a
need for them to find ways to expand their
business. Expansion can be found by moving
up the value chain, offering value added
services to their existing customers or by
looking to new markets into which they can
expand.
Returning to the three business models mention
previously, this combination of threats and
opportunities for an emerging market mean that
they must develop a strategy that enables them
to expand their regional coverage and/or to find
a specialisation and diversify their business mix.
Such a strategy allows movement from the
“regional” exchange role in which most
emerging markets are found into both the
“global” and “diversified” exchange model.
Obviously it is not possible for every exchange
to become a global exchange, but the point is
that when selecting their technology, exchanges
must bear in mind selecting a solution that has;
• flexibility to combine multiple markets as the
exchange expands its regional coverage
• flexibility to meet foreign investors
expectations for harmonised trading rules
• flexibility to serve the local market for more
sophisticated products in one system to
diversify cost effectively; and
• scalability to handle the increase in capacity
and sophistication of their customers to grow
without needing to change the software itself.
In other words, the critical success factors for
an emerging markets technology platform are
flexibility and scalability.
FLEXIBILITY
Flexibility, in the context of Exchange Trading
Systems, manifests itself in several ways. First is
by offering a rich variety of market types that are
common too foreign markets, understood to
foreign investors or to enable the exchange to
operate the system in the way that is most
appropriate to the market in which they are
located. Second, is the ability to offer a wide
variety of products to service the local markets
increasingly sophisticated needs, in the one
system. The final area of flexibility that we want
to look at is operational flexibility.
Harmonisation through market flexibility
Market flexibility is the means by which an
exchange can offer many different modes of
trading the securities they list. This means from
the primary auction of sovereign and corporate
debt securities, through normal automatic
matching limit order books, up to maximal
clearing volume markets such as an equity
opening match. On top of these fundamental
market types, the system should offer call
markets, the possibility of various forms of after
market trading and crossing and the ability for
trade reporting for those deals whose details
are reached outside the normal markets
operation.
Clearly this list is by no means exhaustive,
however, when comparing systems, it is the
richness of the functionality along with the
different order types supported (such as limit,