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Exchange Roundtable: Regulations And Technology In The US, Chile, Mexico, Turkey And Greece

Exchanges are standardising on the FIX protocol, improving and upgrading their systems as regulators modernise, improving local markets and attracting foreign investors as key goals. What kind of progress are they making? We have organised a roundtable of exchange leaders to discuss recent regulatory changes and improvements in technology in the Mexico, Chile, Turkey and Greece.

Exchanges in Mexico, Chile, Turkey and Greece have made progress and attracting institutional investors who are looking for familiar rules across markets. While the US investors continue to push the envelope, US regulators strive to raise the bar on oversight and surveillance. But what are the challenges ahead? How does the FIX Trading Community facilitate the discussion around business practices beyond the widely adopted FIX messaging protocol?
Here is our panel of leaders from exchanges around the globe:
• Moderator Brian Ross, CEO FIX Flyer
• Susan Ameel, Chief Compliance Officer, National Stock Exchange
• Enrique Ibarra Anaya, Senior VP of Technology, Bolsa Mexicana de Valores
• Andres Araya, CTO, Bolsa de Comercio de Santiago
• Ali Coplu, CIO, Borsa Istanbul
• Dimitris Karaiskakis, COO, Hellenic Exchange
Exchange Roundtable 2013

Brian: Susan, what do you see on the horizon in the next year from US regulators?
US regulators will be busy implementing the consolidated audit trail rules. The consolidated audit trail will allow regulators to perform cross market surveillance using a central repository on a T+1 basis.

Brian: And what are some of the challenges posed by US regulators going forward?
US regulators must be able to quickly analyse data, and help members quickly identify problems that may impact the integrity of the markets. The SEC has requested that each exchange adopt “kill switch” rules and technology to help achieve this goal. Regulators need to build on this process by identifying other issues that can be spotted through effective data analysis and to assist member firms to identify patterns that appear to be problematic. Early detection means that firms can address issues in a more timely fashion, improve a market’s overall integrity, and reduce the instances of the problematic activity.

Brian: Susan, do you see areas that could be improved to assist in this process?
Standardised data and synchronised timestamps would be key to this effort. The FIX protocol provides a starting point for obtaining standardised data. The trading community has mutually agreed to use the FIX protocol to communicate the data elements that are needed to establish the material terms of a trade. By using available standardised data, you are not recreating the wheel or putting any additional burdens on your members. In fact, each exchange publishes a FIX spec against which each member is expected to program their messaging. Of course additional information is always required but regulators should try to be as efficient as possible. However, one problem that needs to be solved is the synchronisation of timestamps as well as the required granularity of timestamps.

Brian: Enrique, Mexican regulators moved to modernise their markets with RINO initiatives in 2010 and 2011 and the BMV successfully welcomed HFT, launched a new trading engine and built modern co-location facilities. Can you tell us about the BMV’s new trading engine and other initiatives you are planning for your members?
Yes, the BMV successfully launched our new low-latency trading engine MoNeT in the fall of 2012 and we are now working in the normal functional evolution and maintenance of the system. Two new versions have been released in 2013 with a number of functional enhancements for connectivity, latency, order types, risk management and more. We are also working to provide more info in our market data feed to allow our members and trade workstation vendors to develop a trading workstation system with the same level of information that the trading workstation of the Mexican Stock Exchange (BMV) offers. The intention of this initiative is to stimulate the development of new trading workstation solutions to allow the brokers to have diverse alternatives and to eliminate the fact that the BMV is the only provider of trading workstations for the brokerage houses.

Brian: Enrique, what changes are on the horizon in 2014 for members of the BMV?
In 2012 our new trading engine, MoNeT, introduced the feature of “market filters”, which works to reject orders with obvious mistakes (fat-finger errors) to protect the brokers. During 2014 several functional extensions will be added to the filters that monitor price and volume in the new orders. We additionally use dynamic and static price fluctuation ranges that will be further optimised in 2014. Our market is not currently anonymous and we will explore the adoption of an operational anonymity scheme in 2014. Our trading engine supports the market anonymity mode, we will discuss its use with the brokers and the regulator. We are also considering making functional adjustments to our pegged orders in 2014. Finally, next year we will launch a new market data product based on multicast transport. Our current market data product uses unicast TCP connections.

Brian: Andres, in Santiago you have also been very busy. What initiatives have you been pursuing for your members in 2012?
One very important initiative is the Derivatives Exchange which we aim to offer to all the capital markets, particularly institutional investors and intermediaries both domestic and foreign the ability to trade in Chile investment and hedging instruments in an open and regulated market, starting with a first step in equity index futures, then continue with currency futures, fixed income futures and options. The development of a derivatives market in Chile will enable breakthroughs in the process of diversification, risk management, liquidity and depth of the domestic capital market, and at the same time represent a major boost for the local market, facilitating the use of the capital market not only for local investors, but also to a large number of foreign investors.
The Chilean capital market has grown about 10 fold in recent years in the amount and number of operations, so there is now a natural demand for new services and products, making it necessary to develop a regulated derivatives market. The derivatives market of the Santiago Stock Exchange has been developed with the participation and assistance of BM&F BOVESPA who had tremendous success in the creation, operation, promotion and marketing of their derivatives market, an example that we hope will be repeated in Chile. It is noteworthy that the Derivatives Taxation Act enacted in October 2011 incorporates tax exemption on capital gains for all foreign investors, which will undoubtedly facilitate the participation of international investors in the derivatives market in Chile.