Imagine being the sole stock exchange in an entire nation where no dark pools exist. This may be the dreams of stock exchange operators inside NYSE, Nasdaq and the other stock exchanges and venues in the United States but its the reality in South Africa. The Johannesburg Stock Exchange is the only bourse in the nation and it doesnt even have rival dark pools stealing their clients and trading volume.
Despite these wonderful odds, the JSE is taking steps to grow its presence in the global markets with new technology and offerings for broker-dealers. At a recent breakfast meeting in midtown on a sweltering hot day in Manhattan, Traders sat down with Leanne Parsons, the 26-year JSE veteran for her views on the South African market, global markets and the role of HFT and dark pools. Parsons is the COO and head of equity trading at the JSE and is also a member of the exchanges executive committee and was appointed to the board in 2000. According to her biography, she helped establish the exchanges clearing and settlement division and aided in forging the the technology relationship with the London Stock Exchange.
While South Africans debate the merits of HFT, the JSE is hitting some fast speeds. The bourse recently launched its colocation center that allows JSE clients to place their trading servers in the JSE data center for what it calls the fastest access to all JSE markets and lower latency. According to the JSE, the new center provides clients with a network latency of approximately 50 microseconds, which it claims is 48 times faster than using trading equipment that is situated in the area near the exchange. However, the network latency differences can be greater for clients whose trading equipment is located further away. Colocation is more than 4,000 times faster than trading from abroad, according to exchange claims.
We wanted to offer services that were on par with our other comparative exchanges. We had customers asking for colocation services and if you look at this from an exchange perspective, despite what is going on in the U.S. and the uproar surrounding Michael Lewis book, colo actually levels the playing field for everybody, she said.
We have equal latency to everyone. We don’t have a closed club where only certain people can come in. We allow everybody.
And the JSE offers the same speeds to all clients without special pricing for faster feeds. We charge the same fee for it, she said, adding that the servers cables connecting to the JSE matching engine are the exact same length. The box that is furthest away from the matching engine is connected via a 40 meter cable. The server closest to it is the same length and it is coiled. We don’t charge a differential for that.
The same fairness goes with the pricing. We also don’t charge a premium so members do not pay less than other clients. We also allow shared infrastructure providers to sub-lease to other clients so it is more affordable, she said. You dont have a situation where it is premium service only available for the big guys who have the cash.
Like the recent uproar over the allegations of market fixing made in the pages of Flash Boys here in the U.S., Parson said that there is an active debate over HFT in South Africa as well.
The challenge is what is HFT? Once you label this you have to be very specific about what you try to label. We don’t have this label in South Africa. We would consider HFT to be anything that involves electronic trading to be fast and that is dangerous, she said, and added, because this is a wide definition.
Parsons said that she thinks the attitude of HFT in South Africa is balanced between those who think it is a problem and those who do not. She added that most of those views come from the international press. We have very little HFT at this time. Its likely to grow. We have little algorithmic trading but that is set to grow, as well, she said.
Most of this relates to the equities markets. We don’t have a sufficiently constant and stable latencies in our other markets to warrant that kind of activity from a technical perspective, she said.
If we look at the trading volume statistics from South Africa, we are not concerned around degradation of market quality at this stage, said Parsons.
Like the U.S. markets, trading volatility is stable with little change, according to Parson. Despite what she called a bumper year from 2012 to 213 after the implementation of new trading technologies at the exchange and some seasonal trading, she sees the same caution that appears to plague the US markets. Our equity markets are reaching all time highs. We have stable investment from foreigners, but nothing moving the earth. People are just nervous and are waiting to see what happens.
When it comes to dark pools, they do not exist in South Africa in the way that they to in America. Thanks to South African legislation that allows the markets to exist and operate, it doesnt contemplate the concept of dark pools, she said. If a trader has a large size that it wishes to trade anonymously, they have the ability to go dark but remain on the exchanges central order book.
We try to bring the best of the dark world and the lit world together, said Parsons.