The Bombay Stock Exchange (BSE) will overhaul its technology platform after a striking a deal with Deutsche Börse-owned Eurex Group, in a bid to grow derivatives volumes on its market.
BSE will deploy the Deutsche Börse Group’s trading architecture, which includes replacing its derivatives market platform this year, with plans to replace its cash equities trading engine thereafter.
According to Eurex, the partnership will vastly improve the capacity and latency of the BSE’s system, putting it on a par with the technology that is already in place at the International Securities Exchange (ISE) and currently being rolled out at Eurex.
Being hosted on the same platform as Eurex and the ISE will offer cross-connectivity capabilities, resulting in broader access to liquidity and reduced IT costs for members, as well as presenting opportunities for cross-listing in the future.
“We expect our technology alliance with Eurex will help BSE to compete more effectively in India, to help us attract more international participants into our marketplace and improve our market share in derivatives and equity trading,” said Ashish Chauhan, MD and CEO of BSE. “It will quickly put BSE into the premier league of exchanges in terms of the performance of our matching engine and overall technology infrastructure.”
However, some industry observers have noted that technology alone will not be sufficient to attract more market activity from overseas.
“The BSE has set its sights on growing derivatives volumes and in particular activity from foreign investors. But in reality, a sophisticated trading system isn’t always enough,” said Hirander Misra, co-founder of trading platform provider Forum Trading Solutions. “International investors need a solid base of liquidity before they can trade in a new market, something the BSE doesn’t always have.”
As part of efforts to grow its equity derivatives segment, BSE launched the ninth phase of its liquidity enhancement incentive programme on 1 February. The latest initiative offers incentives for market makers and general market participants to provide liquidity in S&P BSE SENSEX futures.
The tie up also reflects a greater focus on Asia by Deutsche Börse, as set out by CEO Reto Francioni at the start of 2013. So far this year, Eurex has deepened ties with Taiwan futures exchange TAIFEX, received consent to offer direct market access to Korea and admitted its first Japan-based member.
“This technology alliance strengthens our long-term partnership with BSE, and is another milestone in our Asian strategic roadmap, in which India obviously plays an important role,” said Andreas Preuss, CEO of Eurex and deputy CEO of Deutsche Börse.