Plus Markets' plans to develop a competitive stock exchange by creating new products and services on the basis of its status as a recognised investment exchange are underpinned by a technology strategy that builds on Algo Technologies' software.
The exchange’s change in business strategy results from a five month review that ended in late August and identified new revenue streams beyond its niche in the small and mid-cap primary market and the retail trading sector. The review also concluded that costs could be cut significantly by changing the company’s core technology.
For the past three years, Plus has outsourced its technology requirements to Nasdaq OMX under a facilities management agreement, but it has now served notice to end the contract in the fourth quarter of this year and is bringing technology development in-house. It will initially replace the Nasdaq OMX service with a quote and trade reporting facility based on Algo Technologies’ software.
Cyril Theret, CEO of Plus, explains: “Technology was always going to be part of the change at Plus. An outsourcing arrangement means you are not in control of the technology. We need to be nimble to support new products, so we need to be in control. Nasdaq OMX is also a technology provider to many exchanges across the world, so how could we jump the queue if we wanted to innovate new products and services beyond cash equity trading?”
Plus also points out the drawbacks of a platform that was not designed for MiFID and required significant customisation that could cause too many points of communication and therefore potential system failure. The Nasdaq OMX platform is also bespoke, requiring participants to learn and support a specific application programming interface (API).
While the outsourcing agreement runs its course, Plus is concentrating on a phased IT implementation programme that will deliver a low latency and scalable trading environment with FIX connectivity.
Tony Harrop, Plus chief technology officer who joined the company in April 2010 from LiquidityHub, was tasked with selecting a technology vendor to underpin the exchange’s business strategy. About 20 potential providers were identified before a request for proposal was issued to a shortlist comprising Algo Technologies, Turquoise, the solutions business of Nasdaq OMX and Chi-Tech. After a period of due diligence, evaluation and software testing, Plus selected Algo Technologies.
“The final choice was difficult, but we chose Algo Technologies for a number of reasons. It could immediately replace our existing platform and it could provide data services and network connectivity, while reducing costs. A single stop shop was attractive and we are now in control of our own destiny, rather than being dependent on a third party,” says Harrop.
Plus claims that the vendor’s technology will allow it to leap ahead of its competitors and retain competitive advantage, as Algo provides it with a ‘snapshot’ of its source code that the company can then implement and develop using its own team of skilled programmers and a handful of external consultants. Algo’s software also offers the advantage of a pre-built modular approach, allowing new functionality to be added quickly and integrated easily. The core technology is based on C++, with Java used to build out additional elements. The project’s hardware includes HP servers using virtualisation techniques and Plus has chosen the PostgreSQL open source database.
The company’s first technology platform, Plus One, will support MiFID quote transparency and trade reporting. It has been built using Algo Technologies’ AlgoData low latency market data service and the AlgoSpan fibre optic network that resulted from a joint venture between Algo Technologies and FibreSpan in April 2010.
The AlgoData market data service replaces Thomson Reuters’ DataScope and is claimed to achieve exceptional speed through the use of AlgoSpan’s point-to-point fibre connectivity and the delivery of selected market data. AlgoSpan replaces BT’s Radianz network and will be used for connectivity to and between Plus data centres at Equinix in Slough and Interxion in the City of London. The Plus One platform is about to go into test and is due to go live before the end of 2010.
A second platform, Plus Two, to support a new, lit book will be developed using Algo Technologies AlgoM2 matching engine and is planned to go live by the end of the second quarter of 2011. If Plus is not trumped by another exchange, this will be the first live implementation of AlgoM2, which Algo Technologies claims is the fastest matching engine in the market with a 16 microsecond round trip transaction time.
The new technologies will also support the introduction of further Plus products and services. The Plus One platform is scheduled to add electronic retail trade execution to Plus’s retail trading services next year using a request for quote model that will provide best execution, single fill and price improvement. Plus One will also support the first product, an interest rate swap, from the company’s newly formed Plus Derivatives Exchange. Under licence agreements made with the FTSE Group, the product will provide exposure to the FTSE Medium Term Interest Rate Swap Index Series, initially through an OTC cleared service. Subject to market demand, the product and other multi-currency interest rate swap products may then become exchange traded products listed and traded by Plus on the Plus Two platform.
For Algo Technologies, Plus Markets will be a high profile win if it is the first exchange to complete the triple implementation of the company’s data service, connectivity network and matching engine. For Plus, the new technology will be a step change in business and potential. As Theret concludes: “We are extending our product offering, forging new partnerships, developing new products and building new markets. Algo’s highly advanced technology will enable us to leapfrog established multilateral trading facilities and exchanges and provide the foundations for growth.”