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Trading technology

Aiming For The Clouds

Senior Executive Vice President Michael Lin of the Taiwan Stock Exchange goes through new developments and ongoing challenges for the TWSE.

What was your implementation procedure with your new connectivity platform, and what were you were looking to achieve?
Basically, the implementation of FIX/FAST was for two reasons. One was that we see the following of international standards as a major part of our agenda for the development of our IT systems. Secondly, on the Taiwan capital market, the number of foreign institutional investors has been steadily increasing.
Foreign institutional investors already account for one-third of the market capitalisation, and they are very active in investment activity for their clients. Furthermore, many Taiwanese investors are also interested in investing in offshore products. So I think these two reasons are basically why we really wanted to implement FIX/FAST.
What is the current level of FIX Protocol implementation?
We implemented the FIX Protocol three years ago. But, honestly speaking, at the current level of implementation, I don’t think we have many trading activities placed through the FIX Protocol. The reason is, for brokers, the problem is on our internal system, we still use our proprietary protocol TMP. It means that even though the brokers can place an order using the FIX Protocol, when the message enters into trading system, a conversion to TMP is needed. That means that for messages placed through the FIX Protocol, the performance is not good enough due to the need for convergence.
However, we are now gradually getting more brokers interested in placing their orders through the FIX Protocol. And, we are constructing a continuous trading mechanism, under the new system, the conversion from the FIX Protocol to TMP is no longer necessary.
Where is the Taiwan Stock Exchange amongst its global peers, as well as amongst its Asian counterparts?
We have seen some clear trends in the development of connectivity, especially around the FIX Protocol and FIX/FAST.
Along with the rapid growth of globalised capital markets, we can find some exchanges that are eager to establish closer market connectivity. They are looking to build up close market connectivity for brokers, for example, the New York Stock Exchange proposed to establish connectivity between themselves and the Taiwan Stock Exchange.
The purpose of this connectivity is that it allows brokers in Taiwan or in New York to access the other market easily, just through the connectivity built by the two exchanges. Previously for any brokers in Taiwan, if they wanted to trade on the New York market, they had to find a broker in New York, and they needed to allocate resources to the connectivity solutions through service providers. That was a huge expense, and it was also very time-consuming.
However, once the connectivity between NYSE and TWSE is established, then we can make the connection for the brokers much easier and less costly.
Other exchanges are also looking at the same idea, for example, the London Stock Exchange and even in Asia we can see the Tokyo, the Korean and the Singapore Exchange are exploring connectivity solutions.
So, I think we should focus on this area. Internally, we also held discussions on helping the brokers in Taiwan to extend their global market. I think IT investment and IT management is not easy for many of the local brokers as they are quite small in scale. So we are now really focused on looking into this area.
What are you trying to achieve this year?
This year there are several big projects for us. The first one is we are building our so-called “next generation trading system.” We finished the coding at the end of last year, and this year we are working on the testing. We hope by the end of this year, our new trading system can go live. This new trading system really matters because, first of all, we have changed the traditional proprietary platform to open architecture. We changed the language from COBOL to C++ and we also introduced a new middleware.
In terms of application structure, we have taken this opportunity to make the system more structural, separated into modules, and more flexible. We hope this change will make our business development easier.
Secondly, we are also building a new data centre. We thought about having a new data centre for many years and, fortunately, we are now building it. Construction is underway and we hope to finish the building next year, and to start operations in early 2015. The meaning of this data centre is that it is not only a data centre in a traditional sense, but we have constructed the new data centre around the “cloud concept”. This means we have prepared the building to very, very high specifications in terms of cooling, power consumption, etc.
Also, very importantly, we are also planning cloud services for capital market members in Taiwan, which is the third project I would like to share with you.
We have organised a task force and are preparing what we are going to provide in terms of cloud services. So far, other exchanges around the world when they provide cloud-related services, they have focused on areas such as co-location, data services, etc. Seldom have exchanges really focused on the true concept of the cloud. But the Taiwan Stock Exchange is looking into true cloud services. For example, we are considering providing trading systems on the cloud. Until now only the New York Stock Exchange really offers, a comparatively, more complete or more integrated cloud services for community members. However I think what we are considering is an even broader scope of cloud services.
The cloud services matter because, as I mentioned, most of the Taiwanese brokers are small in scale, so it is very difficult for them to maintain IT development on a global scale. So once we can provide cloud services for them, it is not only cost saving, but I think they can gain the benefit of faster time to market whenever they need to match the requirements of regulatory change, or changes in the business environment.
What challenges have you faced?
From my viewpoint we have been very lucky, because since the 2008 financial crisis, the financial sector around the world has been struggling; however, both the regulator and our board members are really supportive of IT development within our exchange.
In terms of IT challenges, firstly we need to maintain the original system. We need to make the whole system, not only the trading system, but the whole IT system within our exchange, reliable. At the same time, we have our three big projects, so I think it is very challenging for us to maintain the current system and concurrently we want to spend a lot of time on new development.
The second challenge for us is to find good talent, to retain the good talent and to train them.
A further challenge is in trading volume. Last year we lost almost 20 percent of trading volume. So far in 2013, it seems we have had some bounce back, but not entirely.
However, we’re always proud of the Taiwan capital market; we have a very good turnover, and a very good regional P/E ratio, so I think trading volume will return. Quality really matters for the Taiwan capital market because compared with Hong Kong, Japan, Korea, even Shanghai, we are smaller. We need to rely on good corporate governance, P/E ratio or turnover, etc.
So it should be a challenging year, but we hope we can turn it into good news.


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