LEANNE Parsons is director of equity markets at the JSE.
SUMMIT TV: The JSE has started using its new equity trading platform, called Millennium Exchange. What is the Millennium platform?
LEANNE PARSONS: We wanted to upgrade and implement new technology and we wanted to do that in South Africa - for 10 years it's been in the London Stock Exchange (LSE) building but it's now back at the JSE.
STV: Why did you move it to London 10 years ago?
LP: Then we were only doing 13000 trades a day, so at that level one can't really afford the technology. Sharing with the LSE, we could afford world-class technology and we did something unique in the world, being more than 5000 miles away. Today we have about 107000 trades a day, so we have the volumes to support a world-class platform in South Africa without having to share.
STV: Will this resolve some of the connectivity issues you've had in the past few years when the JSE has gone down for a few hours at a time?
LP: Most of those incidents were as a result of the international link, so now that we do not have to send orders up to London to get matched, we will not have to hold the market with those sorts of issues. We still publish data to London because we have many international investors, but it's not a market halt issue. The majority of the participants are in South Africa and it's all done off the back of the JSE's network.
STV: Will stockbrokers and retail investors feel a difference between this system and the old platform?
LP: When we were doing dress rehearsals - we've been testing significantly since March - one of the comments made by one of the traders was that it was visibly faster.
When we were executing on the LSE platform in London on the fast cable, system transmission was about 200 milliseconds but sometimes when there were issues that was about 400 milliseconds. Now those delays are eliminated and trades take about 500 microseconds. There are 1000 microseconds in a millisecond so you can imagine how fast that is.
STV: Does that speed make a huge difference? The JSE is the biggest exchange in Africa but relative to the New York Stock Exchange it is still small.
LP: We have to be competitive with other global markets, and people look for different things, such as faster execution. If one doesn't have a ticket to the game, one can't participate. We have to be at least equivalent with the other international markets.
STV: Is this going to attract higher trading volumes to the JSE?
LP: Every time we've upgraded to superior technology, as we did in 2002 and 2007, we have seen a tick up in volumes. That doesn't come immediately from a platform perspective, but shortly thereafter we can see a step change from a volume perspective.
Given the speed of this platform - and we hope to improve the operational stability - foreign investors will see a dramatic improvement in speed. They used to place orders that went all the way up to London and then back to the Johannesburg broker and then back to the foreign investor - now it's just being executed between the local broker and exchange and back to the foreign investor.
STV: You talk about high-frequency traders and algorithmic trading, and how they might be attracted to the JSE with this new platform. Why is that important? Surely interest is also a function of how many products you have on the exchange and the shares you trade rather than the platform?
LP: These kinds of traders really look for different things in the markets - it's not always about speed, it's also about opportunities - but there is a minimum speed level that attracts them to the market. They look at liquidity and price arbitrage. We have many dual-listed securities, so we might be the largest exchange in Africa and the only exchange in South Africa but many of our securities are dual-listed on other markets.
In the US, nearly 50% of all trading is done by high-frequency traders, so in terms of volumes that's a big number. If you're not providing an opportunity for those people to be attracted to your market, you're saying "no" to a lot of volumes.
STV: Do you expect interest from high-frequency traders?
LP: You need the ecosystem. We equate this to the analogy of a Ferris wheel where it's difficult to get out at the top - one has to go all the way around. We are not putting in place just a faster matching engine. Later we will implement co-location, and one needs the right billing model. This is just the first step in what is going to be a phenomenal journey for the JSE and South Africa.
STV: What has the cost been and are there implications for stockbrokers and retail investors?
LP: Part of the fees we charge includes technology refreshes, and we explained to the market we would not be upping our fees to cover this - it's been part of the reserves we built up. There shouldn't be any difference. We certainly would not increase our fees to pay for this.
STV: Did the changeover go smoothly? I noticed the all-share index was flat - was it generally just a pretty flat day on the exchange?
LP: It went smoothly. It was a quiet day at about 80% of the volumes we normally do - that's not unusual in both implementations, where we've seen people cautious.