Bats Trading was launched in the UK today bringing with
it possible trading times 10 times faster than the London Stock
Exchange.
The latest
multilateral trading facility (MTF) to enter the UK stock
trading sector claims to be able to process trades in under a
millisecond. This compares to the London Stock Exchanges three
millisecond capability.
Bats Trading, which was launched in the US in 2006, is in the
process of building a European business.
The firm's core trading platform is capable of processing trades
in 200 microseconds. About 80% of its current trades, in the US,
are processed in 400 microseconds. The time taken to process
trades, or latency as it is known,involves the time take to accept,
process and acknowledge a particular order," said a Bats
spokesman.Faster trading speeds are advantageous when dealing with
the large investment banks that use computer generated algorithms
to instigate high volumes of trades.
Chris Skinner, CEO at financial services think-tank Balatro,
said Bats has an opportunity to win business in the UK. "It has
been very successful in the US and there is no reason why it
shouldn't in the UK."
John Bates, general manager at
complex event processing software supplier Progress Apama, said
the entrance of Bats into the European market is further signal
that incumbent trading exchanges cannot rest on their laurels.
"If its US experience is an example, we can expect them to be a
force to be reckoned with. No doubt, the current incumbents will
redouble their efforts to withstand the inroads that BATS will
make. Exchanges can choose to compete on price, compete on
services, or compete on a mixture of both.
Due to the competition in the sector as well as the advancement
in technology the speed of trade execution has diminishing
importance.
Bates said in the current market climate and because of
Mifid has forced exchanges to compete on more than speed alone.
"Exchanges must look to incorporate a broad range of services that
can attract and sustain liquidity. Otherwise they risk competing
solely on increasingly minute distinctions of latency or
transaction costs.
The London Stock Exchange recently announced that for the first
time it would offer trade clearing services in the UK. It also
introduced a service where
investment banks can put their algorithm generating servers in
its datacentre next to its trading platform. This reduces trading
times further.
| New players |
|---|
| MTFs, which compete with traditional stock exchanges, are
already in the UK in the form of Chi-X, Nasdaq OMX and
Turquoise. |
| The markets in financial instruments directive (MiFID) which
came into effect in November last year, has
liberalised the stock trading sector through the removal of the
concentration rule. This rule stated that trades should go
through local exchanges and led to the creation of MTFs. |
| All stock trading venues use complex core trading software to
complete trades and rely on massive IT infrastructures to process
and store the information. |
| Speed is of the essence |
|---|
| With stock prices fluctuating rapidly a millisecond here and
there can make a big difference. |
| Skinner at Balatro said if an exchange has the fastest trading
time it has more chance of winning the business from investment
firms that use algorithmic trading systems. |
| "These systems send messages automatically to see where they
can trade and if a trading system is fast enough to complete the
order they require it will automatically use it." He said
algorithmic trading systems initiate trading when a stock reaches a
certain price but this may only be for one second a day so systems
must be fast to achieve the trade in this
window. |