The construction of a next-generation trading system at the Taiwan Stock Exchange (TWSE), which is expected to be completed by end-2012, will reduce latency on the exchange by 10 times and boost capacity by at least three times from its current levels, according to Michael Lin, senior executive vice president, TWSE.
“Latency is currently around 50 milliseconds and we hope to reduce it to five milliseconds for the first stage,” he says. “Because the system is scalable, latency can be reduced by adding machines once we have the new system in place. The current capacity is around 3,000 transactions per second and we hope to increase it to at least 10,000 transactions per second.”
The TWSE also plans to adopt continuous trading, followed by the introduction of different order types, after the new system starts operations. At present, only limit orders are possible with matching of orders done every 20 seconds through a call auction mechanism.
Technology for the next-generation trading system is being developed in-house. Although the exchange may outsource some aspects of the projects to vendors, the exchange will retain control of the core competencies, Lin notes.
At end-June, TWSE completed its data transmission integration project, which included a ”network integration service’ that allows small- and mid-sized brokerages to use a single pipe to connect to the different securities and futures markets via fixed line operators. It also involves the integration of FIX to allow trading firms to use one messaging protocol to conduct transactions in the different securities and futures markets. The project, which is supported by Taiwan’s financial regulator, the Financial Supervisory Commission, includes among its leading participants the TWSE, Taiwan Futures Exchange (Taifex), GreTai Securities Market and the Taiwan Depository and Clearing Corporation.
Since 27 September 2010, TWSE has made available its FIX Protocol platform through which foreign and local brokers are able to place orders and receive execution reports. One reason for the adoption of FIX by TWSE was its widespread use by international institutional investors. Foreign participation in the Taiwan market has been steadily growing. Daily turnover of stocks listed on TWSE amounted to around NT$154.71 billion (US$5.3 billion), and market capitalisation came to NT$20,996 billion (US$724 billion) as at 5 August 2011.
Brokers executing their orders on TWSE now have the option of continuing to use the proprietary Transaction Message Protocol (TMP) or switching to FIX. Many brokers are in the process of building their interface for FIX connectivity with the exchange and will start sending orders via FIX when the test runs are completed.
“We may consider phasing out the TMP Protocol after we finish construction of the next generation trading system,” says Lin.
Regionally, exchanges have been in a race to upgrade their trading infrastructure in an attempt to grow their volumes and tackle competition from alternative trading venues. In April, the Singapore Exchange launched a new data centre and co-location facility as part of its S$250 million Reach project, including the world’s fastest trading platform, that is scheduled for launch this month.
The Australian Securities Exchange’s PureMatch, a platform aimed at high-frequency traders, is due to launch towards the end of this year. The Hong Kong Exchanges and Clearing Limited (HKEx) is also scheduled to launch an upgraded version of its securities market trading system by the end of this year. Known as AMS/3.8, the upgraded system aims for a tenfold improvement over the existing securities trading system capacity to achieve an initial capacity of 30,000 orders per second (scalable to 150,000 orders per second if necessary), as well as an average order processing latency of nine milliseconds. The upgrade to the securities market data system (also known as MDS/3.8) will increase the throughput for market data dissemination to 2,000 stock page updates per second from 1,000 stock page updates per second at present.
Author: Jill Wong