The successful rollout on 5 December of the Hong Kong Exchanges and Clearing’s (HKEx) upgraded securities market trading system, AMS/3.8, was a major step towards achieving its technology goals, but the exchange must keep its other market infrastructure reforms on track to meet market needs and support future growth, participants say.
On its first trading day, AMS/3.8’s average transaction latency was 1.4 milliseconds, against an initial target of two milliseconds and about 70 times faster than AMS/3.5’s latency of around 150 milliseconds.
“The rollout was smooth thanks to the concerted and determined efforts of our staff and market participants over the past 18 months. The upgrade will increase the securities market’s efficiency and transparency and pave the way for future growth,” said an HKEx spokesperson.
AMS/3.8 brings a 10-fold increase in processing capacity to 30,000 orders per second, scalable to 150,000 orders per second. AMS/3.8 displays the 10 best price levels, while the previous AMS/3.5 displayed only the top five. The market data broadcast rate has been doubled to 2,000 stock page updates per second.
The new system marks an important step in the HKEx’s three-year strategic plan that is focused on cementing its position as the main bridge between China and international capital markets. HKEx on 18 August issued an announcement saying that it has entered into talks with China’s Shanghai and Shenzhen stock exchanges about a potential joint venture to develop index and equity derivative products.
Peter Tierney, chief operating officer, Asia Pacific, NYSE Technologies, said the exchange was making significant strides toward achieving its long-term technology vision. “The HKEx is doing a lot of the things that we’ve done with our core markets in terms of gateways, matching engines and market data technology. They have made a strong start on a very robust schedule between existing system enhancements, data centre build-out and platform replacement. They have a very solid plan. It is all in the execution now,” he said.
The migration to AMS/3.8 was crucial to prepare for co-location services coming on stream in 2012, according to Lionel Ghouila Houri, Hong Kong-based head of professional trading group, Asia Pacific, at brokerage firm Newedge, “Although the AMS/3.8 engine is still behind the top league in terms processing power and latency, this migration is very welcome by high-frequency traders. Once co-location is available, the exchange will attract more high frequency firms, so it needs more capacity to cope with the additional load,” he said. “That said, the stamp duty in Hong Kong is still a deterrent for high-frequency traders to trade stocks and they will keep focusing on warrants and callable bull bear contracts.”
Improvements to the HKEx’s market infrastructure and technology are seen as critical components of the HKEx’s future growth strategy, particularly given the fact that other Asian exchanges are already engaged in a technology race. The Singapore Exchange in August launched Reach, its trading engine that it claims to be the world’s fastest, as part of its S$250 million (US$207.9 million) infrastructure upgrade that also includes the SGX Data Centre and colocation services that were launched in April 2011.
HKEx plans to release over HK$2 billion (US$256.6 million) on capital expenditure over the next three years, excluding the cost of a next-generation trading platform whose development would begin after the upgrades of the exchange’s AMS/3.8 matching engine and MDS/3.8 market data platform are completed. The exchange is also building a data centre, scheduled for completion in 2012, with 31,400 square metres of floor space that would enable it to offer co-location services. The primary data centre for HKEx’s securities market is scheduled to move to the new centre late next year and other facilities will be moved to the centre or established there in the following months. HKEx plans to roll out its Hosting Services in phases starting late next year.
In terms of trading architecture, the HKEx’s strategy is designed to be flexible enough to be able to provide participants with a wider range of options, such as being able to offer FIX connectivity as a choice on top of its proprietary protocol.
Author: Jill Wong