SFE Revamps Systems And Embraces FIX; New Sycom Brings 24-Hour Trading

SYDNEY--The Sydney Futures Exchange (SFE) is in the midst of an effort to provide open, multi-market, 24 hour trading and clearing systems for the Australasia futures market.

And it plans to embrace the Financial Information Exchange (FIX ) protocol for broker communications when it implements an upgraded version of its automated trading system this October. Meanwhile, the SFE has recently launched a new extranet to distribute information to its members.

Greg Gibson, SFE's general manager, project services and business development, says the extranet was launched in March and is called the SFE Information Network. The extranet provides exchange news and allows the entry of transaction information that does not need to be distributed in real-time, such as adjustments to clearing positions and registration of off market trades. It is a closed network which, using the Internet as its backbone along with password and security protections, links all of the SFE's members in Australia and New Zealand. The SFE owns and operates the New Zealand Futures and Options Exchange (NZFOE).

The latest version of the SFE's automated trade matching system, Sydney Computerised Market (SYCOM), is part of what the SFE calls its Strategic Systems Upgrade project. The new version of SYCOM, dubbed SYCOM IV, will have a FIX-based open order entry interface. SYCOM is the automated trade matching system currently used for the Sydney overnight and New Zealand markets. Gibson notes that the new SYCOM version will be the first system at SFE to combine the 24 hour trading concept with the ability to trade in both the Sydney and NZ markets on the one screen.

Gibson says the FIX interface is an important piece of the system, because FIX, as an emerging financial messaging standard, will allow third party software providers and SFE member institutions to link to SYCOM more easily. The SFE is moving away from requiring members to develop proprietary interfaces, he adds.

"Adopting FIX allows our members, who are really our customers, to do less systems development work and enjoy a quicker time to market using existing products that are already tailored to the FIX protocol," says Gibson.

SYCOM was originally installed at the SFE in November 1989 and provides trading for all SFE's financial and equity futures and options products. SFE licensed SYCOM from Chicago-based software vendor Task Management Inc. (TMI), which later sold a version of SYCOM to the New York Mercantile Exchange (NYMEX). NYMEX calls its system Access, says Gibson.

SYCOM IV will be deployed on Intel-based PCs running Microsoft's Windows NT 4.0. The SYCOM system uses the SFE wide area network (WAN), which relies on routers from Cisco Systems.

Next January, SFE plans to roll out an upgraded version of its allocations and commissions system. This will also have a FIX-based interface for the exchange's allocations infrastructure and built-in straight through processing (STP) functionality.

Currently, after a trade occurs at SFE, both the buyer and the seller have to input clearing instructions, such as where the trade should be cleared. With the new system, members will be able to choose to have those instructions automatically included on the transaction. The clearing system upgrade will be implemented roughly by May next year. The allocations and clearing systems are both based on Windows NT 4.0 and PCs with Intel processors. The new clearing system will allow the SFE clearing house to clear individual commodities more flexibly, says Gibson. He adds that the clearing house will be able to generate indicative margin obligations at different times throughout the day.

Subject to approval by vote of its members, in March 1999, the SFE expects to close its trading floor and its trading pits to switch to full electronic trading. "The exchange has made a commitment to fully automated trading," says Gibson.

He names three main reasons for this change. SFE wants to enable better electronic access to its marketplace and products. The ex change is searching for ways to become more cost effective--for both its members and itself--and wants to take advantage of the greater flexibility in trading mechanisms that automated systems provide.

SFE expects the closing of its trading pits to reduce the fixed costs for its members, by removing the need to have dedicated staff on the floor. Moving staff off the floor and into offices will allow members to make more efficient use of its client advisers.

Also, the SFE wants to remain competitive with the bigger exchanges and sees its switch to full electronic trading as a way to achieve this, cut its costs and take advantage of its smaller size--as compared to the much larger exchanges in Chicago. Gibson says the Chicago Mercantile Exchange and the Chicago Board of Trade have many local members--individuals who trade on their own account, which provides those exchanges with economies of scale. This is not the case at the SFE, which has a smaller member base. The move to a fully electronic exchange will allow the SFE to "operate an extremely cost effective marketplace," says Gibson.

Early next year, possibly in January, SFE will roll out its electronic Large Order Call Automated Market (LOCAM) trading system based on a periodic auction trading approach, to make the execution of large orders more efficient, says Gibson. The exchange has contracted with Sydney-based Computer share Systems, an exchange trading software vendor, to provide the system. Computer share Systems was formerly known as Financial Market Software Consultants (FMSC) until 1996, when it changed its name to Computershare Systems.

Computershare Systems has already built a prototype system for the SFE and is currently developing a production version of the system. LOCAM will use the same WAN as SYCOM.

SFE has been thinking about forming a regional alliance for order routing, with the working title of Asia Pacific Regional Order Distribution (APROD) Network. "This is more concept than project right now," says Gibson.

APROD would route orders between exchanges in the region. Gibson says similar efforts are in place in North American and Europe. He cites the Chicago Board of Trade and the Chicago Mercantile Exchange, which have a system called TOPS Route to route orders between those two exchanges. GL Software, a French organisation, has also established GL Net, which links several European exchanges. APROD would have bridges to European and North American networks, says Gibson. "We are certainly interested in talking to other exchanges in the region which are interested in participating in such a network," he says.

"Being effective at running your own domestic market is a given. For an exchange to be a successful player in the future, it needs to facilitate global business and attract the international investor," says Gibson. "The globalisation in the industry is really just starting," he says.

During the six years that Gibson has been at the SFE, he has led automation projects such as the implementation of multi-exchange trading and clearing infrastructure to support the SFE and NZFOE. He also directed the initiative which established the screen-based trading link between SFE and NYMEX.