The Johannesburg Stock Exchange (JSE) recently led a local delegation to the global TradeTech 2015 conference held in Paris, France. The annual event aims to bring together equity trading and technology professionals from around the world to discuss key trading issues and challenges facing the industry.
A number of notable trends were highlighted at the conference, namely regulatory frameworks around buy-side institutions. Cyber security, high frequency trading (HFT) and the hot topic of dark pools were also discussed. The increased prevalence of algorithmic trading has created an added level of risk for institutional buy-side trade dynamics and, with the appropriate regulation, dark pools provide a potential solution to mitigate against this.
Donna Oosthuyse, JSE Director of Capital Markets, who attended TradeTech 2015 as a member of the JSE team adds that global regulatory interest around buy-side activity – and in particular Low Latency Trading and certain rules governing dark pools – is likely to continue to increase: “There has been much debate around the expected introduction of the ‘Markets in Financial Instruments Directive (MiFID) II within the European Union’s member states.
This appears to be a hot topic amongst the leading exchanges in Europe. While this is not likely to impact South Africa for the time being we know that South Africa tends to adopt best global practice and there is a chance that new regulatory measures, such as MIFID II, may start to filter through to local regulatory environment.”
The JSE has already implemented a number of initiatives, which speak to these current developments, aimed at value creation for long-term, buy-side institutional investors as well as improved accessibility and security. These include:
- Revision to the Block Trade rule – The JSE recently introduced a revision to the rules governing block trading which is aimed at increasing accessibility for certain qualifying investors and enhancing protection for buy-side traders. Trading instruments in the ZA01 listing category now requires 30% of ADV in order to execute a trade, while instruments in ZA02 require 50% of ADV and instruments in ZA03, ZA04, ZA06 requiring 100% of ADV in order to execute a single off book block trade. The JSE may consider including further instruments in this mix but only to the extent that effective monitoring and regulation can be assured and optimum levels of market security maintained.
- Introduction of the Closing Price Cross (CPX) platform – The JSE has also recently introduced the CPX post-close trading session which allows qualifying clients the opportunity to trade, for a limited time, at the published closing price. This session will enable Trading Services Participants (TSPs) an additional five minutes to trade onscreen using the published closing price determined in the CPP session.
- Introduction of a new order attribute – Here, investors can elect not to interact with hidden orders in order to provide further security to their trade executions.
“South African institutional investors and the buy-side community now have access to a well-balanced mix of trading options which are on a par with global trends,” says JSE Head: Equities, Equity Derivatives & Business Intelligence, Nicola Comninos. “It is essential to keep abreast with global innovations among the buy-side community to ensure that the JSE continues to provide a relevant service offering to its clients adding that South Africa was suitably comparable with leading exchanges in terms of its product offering.”
Going forward, the JSE will continue to monitor global legislation in order to introduce relevant local innovations where necessary. In June, the JSE will attend the International Derivatives Expo in London, which focuses on perspectives from exchange leaders, regulators, traders and the buy-side on a range of issues impacting the derivatives industry. The JSE is also looking to represent the local market at the BRICs Alliance conference hosted alongside the China Financial Futures Exchange. In addition, there has been increasing interest among the international investor community to pursue collaborative opportunities with a wider range of African exchanges.
Adds Comninos: “I am confident that the JSE is appropriately-aligned with meeting the global trends relating to changing buy-side investor demand, especially those aimed at encouraging stability for long-term institutional investors. I believe we are providing a world-class offering at the JSE that will lead to longer-term value creation for our valued institutional clients.”