Frances Maguire looks at the emerging markets traders want access to, how technology providers are making their offerings regionally specific and the challenges they face in these regions
The global credit crunch has proved that the Western markets
are just as dangerous as any other so the push into emerging
markets continues. However, opening up new markets to
international access is often not just about the technical
luxuries of ready binary codes and a useful application
programming interface (API) but the regional and local
specifications which need to be taken in to account.
In many cases, these markets are closed to direct
international participation and partnerships with local brokers
need to be formed to gain access. As international investors
are increasingly looking towards emerging markets and trading
on these regional exchanges, the technology firms are often the
key players in providing access to new markets and working with
Leslie Sutphen, global head of eSolutions for Newedge, the
merged entity of Fimat and Calyon Financial, says that once the
broker is comfortable that the market is creditworthy and it is
supported by proper regulation, it can facilitate
Newedges business model. Newedge will then evaluate
allowing omnibus accounts and protection of funds and will
investigate the best access route. It will then find out
if the members of the exchange are sufficiently creditworthy to
use one of them for access and how easy it would be for Newedge
to become a member of the exchange, in order to weigh up
whether the potential new business justifies the time and
effort needed to provide access.
Sutphen says: If we are satisfied with the above, and
we believe that having direct market access is cost effective
and feasible, then we look at the nature of the electronic
platform, what capabilities it offers, and how we might access
it cost effectively.
She adds that generally the technical problems are not
insurmountable. If not many of the larger ISVs have
written to the exchange, it may be something where we have to
do development on ourselves. Circuits to these markets tend to
be expensive and volumes not always so big, so the cost may be
daunting at first. But, Sutphen adds, Newedge prefers to
work with major global technology vendors and has experience in
doing so. We have worked with local vendors where we are
required to do so and where it gives us better access to the
market than if we were to approach it on our own, she
Newedge is about to go live on Mexican Derivatives Exchange
(MexDer), has many connections to emerging markets in place and
continues to add them on an ongoing basis. According to
Sutphen, if the broker is already accessing an emerging market
via a local member, then the time to put electronic
connectivity in place generally takes about six months.
Graeme Neilly, director, global account management at
Patsystems, says that the Turkish Derivatives Exchange, Athens
Derivatives Exchange, Safex, Russian Trading Systems, and
Warsaw, are the most recent emerging markets the vendor is
building connectivity to, on behalf of client demand.
Neilly says: We are a server based system, hence the
functionality is generic and can be used on multiple markets.
Often exchange specific enhancements have to be incorporated
but the majority of the build is catered for in the existing
systems. The greatest challenge and single biggest expense is
when an ISV has to connect to an obscure API, another issue is
being able to work with the client with regards to training,
education and product awareness.
He adds that Patsystems recognises the importance of local
knowledge when building to an emerging market and has partnered
with local brokers in Asia for some markets because of the
access rules involving non-domestic parties and with local
technology companies for some emerging markets, as this
provides reciprocal flow agreements.
Philippe Carré, global head of client connectivity at
GL Trade, says he has noticed a significant shift in the
approach firms are taking to connecting to new markets.
In the past, they would be looking at implementing
everything on a standalone basis, using just our software but
running it themselves, today, the big banks and brokerages
dont want to build it.
There is recognition that it is quite complex to build
connect in the light of the local cultures and potential
language barriers and, more recently, there is a cost factor.
Banks have not yet decided to shelve projects but have
decided to review how they would do those projects in emerging
markets. All the banks are looking at an impressive number of
markets they want to expand into but the key factors are the
time to market and the cost, says Carré.
While cost has always been an important factor in the
decision making process, Carré says it is now making a
difference between customers asking for the software and binary
codes and letting the vendor host the service locally.
While Carré says that all connectivity is client
driven, it can vary greatly from a vague interest to a stampede
in a very short time. One example he gives is Latin America.
Although GL Trade had been working in Latin America for almost
eight years, and servicing some clients in the region, there
was little interest or commitment. Then at the beginning
of last year, interest suddenly picked up and rapid
connectivity to the market Latin America was in great
He says that GL Trade does not only play the role of
software and ASP provider for emerging markets but often acts
as an introducing partner and that the vendor constantly needs
to be ahead in spotting potential new markets. We often
open services in countries where we predict we will see demand
but we dont necessarily have it at the time of initial
development. We opened in Russia, and we are the only ISV
present out there with a real business, when everyone else had
gone. As a result, we are very big in Russia because we went
there when nobody wanted to go, and stayed, and worked with the
While the exchanges are usually electronic, there are often
local specifications needed on the front end, and normally
there is an API available. He says: Where there is no API
it usually involves discussion with local clients of GL Trade
who help to convince the exchange it needs to open up to the
ISVs. In most places there is a station that has become a
benchmark, usually the native terminal given by the exchange
and we can normally cover most of our requirements and then add
one or two windows to our software.
GL Trade offers access to 145 markets and has developed a
strong leadership as an application service provider (ASP),
where it hosts connectivity on behalf of 150 clients connecting
to 60 markets; clients rely entirely on GL Trade for their
market access. The firm has developed ASP connectivity to
MexDer and is opening a full presence in the country in the
form of a GL Net point. There is a lot of interest in
MexDer remote membership now. It really became official and
easier last year, when international players that had to go
through a local broker could become remote members,
Typically, an institution that takes a remote membership
wants to add that exchange to the portfolio of exchanges that
it offers to its clients so they want GL Trade to make that
exchange exactly like the other exchanges they already have.
When we build the MexDer connectivity we try as much as
possible to develop the international look and then complete
the job by adding in the local windows and local specifications
required, so that before we deliver the whole solution we have
developed both the international and local
Carré also adds that in a lot of the markets GL Trade
goes into, it is often the first tech firm there, so the vendor
is often doing more than just distributing software but working
with exchanges to develop an ASP in order to facilitate
connectivity and offering its distribution network. One such
exchange is the Tel Aviv Stock Exchange and there are two
further exchanges in the pipeline, which are preparing to offer
remote membership through a GL Trade partnership.
This year GL Trade will add a number of markets across the
Middle East, Latin America and Asia. On an annual basis, the
vendor adds at least between five and ten exchanges, some of
which will develop into partnerships. If, as Carré
predicts, the costs of connecting to new markets is causing a
rethink at the banks and brokers, such partnerships will grow
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