Emerging Markets See Strength in Numbers for Data Distribution

Last week, emerging-market stocks hit a six-month low, after China announced that its non-manufacturing sector was growing at the slowest rate in over a year. Two days later, the stocks rallied by 1.8 percent—the biggest gain since January—on the back of renewed confidence that the European Central Bank would deliver a speedy resolution to the Eurozone crisis. The slump in western markets has been detrimental to growth in emerging markets, too.

Despite—or perhaps because of—this volatility, the developing economies of Latin America, Central and Eastern Europe, Africa and Asia have maintained their allure through the downturn, and an increasing number of financial institutions are redirecting trading activities to more exotic locations, such as Dutch automated trading firm Deep Blue Capital’s decision to expand into Asia.

Accompanying this geographical shift is a fundamental need for market data—and the easier and quicker it is for traders, brokers and vendors to connect to a developing market and receive prices, the more attractive that market becomes. As such, emerging exchanges are adopting new strategies to more effectively distribute their market data further afield. Traditionally, this has involved partnering with major data and technology vendors to distribute their data more broadly—such as deals in recent weeks for NYSE Technologies to distribute market data from the Warsaw Stock Exchange, for SunGard to source prices from Bolsa de Valores de Colombia, and for index provider MSCI to distribute data from Brazilian exchange BM&F Bovespa.

“A key criteria that emerging markets look for in technology partners is connectivity to a network—especially if you can throw in some serious sales and marketing efforts to promote their services to market data vendors,” says Yousaf Hafeez, director of capital markets development at BT, which added connectivity to the Qatar, Ukraine and Kazakhstan exchanges to its Radianz financial extranet at the end of last year.

However, a widespread tactic being adopted by developing markets is to form or join an alliance of larger exchanges, such as the Central and Eastern Europe Stock Exchange Group (CEESEG) or Mercados Integrados Latino Americanos (MILA), which distribute market data from all members via a central hub. Similarly, Deutsche Börse acts as a data distribution hub for the Irish and Budapest stock exchanges, while recently-merged Russian exchange group Micex-RTS partners with the local exchanges of Ukraine and Kazakhstan as an exclusive distributor of their market data.

According to Michael Buhl, member of the management board of the CEESEG and Austrian exchange Wiener Börse—which distributes market data from the primary markets of the four CEESEG members (Vienna, Budapest, Ljubljana and Prague), the six “cooperation” exchanges of Banja Luka, Belgrade, Bucharest, Macedonia, Sarajevo and Montenegro, and a further three energy exchanges in eastern Europe via its ADH consolidated datafeed (IMD, June 6)—it has long been part of the exchange’s data distribution strategy to provide a single data hub for Central and Eastern Europe because the combined offering attracts more interest than Vienna would alone.

“With so many exchange markets on the ADH datafeed, the Vienna Stock Exchange and the CEESEG have set up a highly competitive data hub for Central and Eastern European market data, which enables data vendors to reduce their connectivity costs drastically,” Buhl says.

The Johannesburg Stock Exchange is also considering partnerships with smaller venues in Africa to distribute data via a single infrastructure after a review of its strategy. But at the same time, the exchange depends on a technology relationship with the London Stock Exchange Group, and will complete its migration to the LSE-owned Millennium IT trading and information system this calendar quarter. During the switchover, the JSE’s market data offering will adopt the industry standard FIX/FAST and ITCH protocols to meet demand ranging from hedge funds, and algorithmic traders to traditional asset managers and large global retail execution providers, says JSE director of market data Ana Forssman. “At the end of 2011, 40 percent of our market data revenue was generated from demand outside South Africa, particularly since our dedicated promotion and sales efforts in the US over the last two years,” she says.

To support data delivery via a standard infrastructure, developing markets such as Johannesburg, Colombia and Peru have taken steps to implement standard market data protocols, which deliver advantages to both the exchanges and clients, says Vahan Vardanian, managing director of IT at Micex-RTS, which introduced the FIX and FAST protocols earlier this year.

“FIX and FAST are standard technological solutions that operate in line with practices of the leading global trading venues and are widely applied by international clients… [but] above all, it is an opportunity for the exchange to broaden its client base,” Vardanian says.

Philippe Carré, global head of connectivity at SunGard Global Trading, says one reason for alliances between emerging markets is the opportunity to reduce costs. “In the past … to trade on a market, you bought the connectivity yourself,” Carré says. “But now it’s about the ability to see more data … through the same pipe.” As such, any effort to remove native APIs, standardize data protocols and adopt familiar technologies makes it easier for vendors and consumers to gain access to data, and for exchanges to broaden their distribution and client bases.