Emerging Exchanges Up Their HFT Game

The Mayans may not have made any big plans beyond 2012, but exchange operators in the emerging markets certainly have. This week, two of them made announcements that will affect the future of direct market access (DMA) and high-frequency trading in their local markets. First, the Johannesburg Stock Exchange (JSE) announced that it had inked a deal with MillenniumIT to deploy the vendor's Millennium Exchange matching engine into a Johannesburg datacenter the first half of next year.

For the past several years, the London Stock Exchange (LSE) has hosted the JSE within its London facility.

Although this arrangement made high-frequency trading possible for London-based traders, it did little for the local Johannesburg firms that had to send their orders to an exchange over 5,000 miles away. Over the past year or so, the South African market has made major investments in connectivity upgrades that will reduce message latency and improve capacity.

Meanwhile, the Moscow Interbank Currency Exchange (Micex) and the Russian Trading System (RTS) Stock Exchange announced their intention to merge. It appears that the Moscow exchanges are taking a page from their Brazilian counterparts and plan to build their own version of BM&FBovespa. By consolidating the businesses, the new group will be able to get more bang for its IT ruble, and allow market participants to consolidate and standardize their connectivity to the new market.

The thing to watch is how these markets will regulate remote traders. The exchanges will still generate revenue from trading and market data fees, whether the traders are local or not. However, if they are looking to create the next Frankfurt or São Paulo, regulators might want to force firms to have a local presence in the market in order to access the liquidity.

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