Borsa Italiana, the Italian stock exchange owned by the London Stock Exchange Group (LSEG), has detailed plans to move its equities matching engine back to Milan as part of a technology overhaul.
The move, scheduled for Q2 2012, will coincide with Borsa Italiana’s adoption of the LSEG’s new Millennium Exchange trading platform, which was introduced for the LSEG’s UK market in February 2011.
“We want to move the matching engine to where the greatest source of liquidity is,” said Gabriele Villa, Equity and Derivative markets, Borsa Italiana. “Most of the liquidity in equities trading on Borsa Italiana is driven by Italian and co-located international clients, and we feel this move will significantly improve the service we offer those clients.”
At present, hosting and co-location to the Borsa Italiana matching engine is available at the data centre in Milan and in London – but London-based traders have a 24-microsecond latency advantage over Italian-based traders, due to their closer proximity to the London exchange. Although small, this could provide latency-sensitive traders, such as high-frequency trading (HFT) firms based in London, with a competitive advantage over long-term investors based in Italy.
“Italian customers will see their latency reduced,” said Villa. “International latency-sensitive customers have taken up hosting services on both cash and derivatives markets, but Italian business is significantly driven by retail investors and brokerage services – and we also want to focus on their needs.”
Since the Borsa Italiana matching engine for derivatives has remained in Milan, moving the equities engine back to the city would also present greater cross-asset opportunities. Villa explained that the reunion of the two markets would provide greater opportunities for cross-market arbitrage, allowing a single client to trade cash and index derivatives without worrying about latency.
Although the move to Italy will increase latency slightly for UK-based firms, Villa was keen to point out that hosting and co-location will be available in Milan – meaning that firms with the funds to establish co-location in Milan will suffer no latency disadvantage, once the matching engine is moved. Pointing to the presence of HFT firms such as electronic market making firm GETCO on the IDEM derivatives market in Milan, Villa added that the contribution of international flow is still expected to remain strong.
Borsa Italiana will hope to avoid the teething troubles experienced by the LSEG during the migration of its UK market earlier this year and multilateral trading facility Turquoise last year. On 5 October, the first day of Turquoise’s operation on Millennium Exchange, the market open was delayed for an hour and 15 minutes. This was followed by a further glitch on 2 November.
At the end of February 2011, just weeks after the UK market’s migration to Millennium Exchange, a data dissemination problem shut down trading for four hours.