A Buy-side Trader’s Take on the Exchange Consolidation

Exchange Mergers and the Buy-side IT Team

Adapting to the merged venues would not involve too much IT work because our connectivity is between our OMS and our brokers and the connectivity between brokers and venues is not something our IT team would need to be concerned about. Our concern would be for some of the static data elements that may need to be updated, e.g. lot sizes or account details in some of the emerging Asian markets. At the recent EMEA Trading Conference, organized by FPL, there was a good session on transaction cost analysis and whether, with the increase in algorithmic trading and smart order routing, people should be doing venue analysis. I think reverse engineering opportunity costs by comparing certain venues is something that will start to feed through from the more advanced quantitative trading desks. The conclusion for most buy-side desks was to make sure your brokers are accessing the multiple ranges of venues in an appropriate manner and to make sure their smart order routers are working in a smart way.

On the other hand, if you split your order up into multiple directions, which is currently the system in Europe, it is difficult to derive quality analysis. This is a facet that we will certainly be keen to monitor, even if on a less than 100% granular level. Lastly, I should mention that we have had a few outages on exchanges. Exchanges have talked about the race to latency, sponsored access and where their servers are located. While these are all timely issues, and though there has been a concerted focus on technology and innovation, there is a slight concern in the back of our minds that too many shortcuts might be taken at the expense of stability. For long only, institutional investing desks like ours, having your primary exchange go down for half a day exceeds our concern for gaining or saving a millisecond of latency. What we do care about is technical stability at the primary exchanges because they still have a lot of market share and a very significant role to play.

BATS Europe Chief Operating Officer, Paul O’Donnell, discusses what the recent acquisition of Chi-X Europe means for their members.

What are the technical similarities and differences between the two venues trading systems? – or – where are there apparent synergies between both platforms and which technical areas will require some retooling?

Given the multiple synergies between BATS Europe and Chi-X Europe (shareholders, culture and personnel, data centre needs, clearing and regulatory viewpoints), a transaction made great business sense. Currently the BATS Europe platform runs on proprietary technology, whereas the Chi-X Europe platform runs on a combination of Instinet and proprietary technology. Our vision for integrating the two organisations includes migrating Chi-X Europe’s lit and dark books to the BATS Europe platform and rationalising infrastructure and connectivity.

How does the acquisition of Chi-X Europe expand BATS’ offerings for its existing members both in Europe and in the US?

We intend to continue operating Chi-X Europe’s lit book alongside the BATS Europe lit book, which will allow us to offer multiple pricing points and functionality differentiation between the two books, and we’re considering how we could consolidate two market data feeds and offer a real-time consolidated data feed at a low cost. Chi-X Europe also operates a dark book, as does BATS Europe, and we’re currently discussing the possibilities for differentiating two dark books. Once the integration is complete, our offering of multiple books, consolidated market data, and the rationalisation of technology environments and infrastructures, will be extremely competitive and ultimately should lower our participants’ cost of doing business. Our immediate focus with this transaction is the European equities market, but we are always looking for opportunities to leverage technology and resources that could add value for our customers in the U.S. and Europe.