Exchanges Continue Cross-Connectivity

Terry Flanagan

While exchange groups continue to consider mergers and acquisitions, many have chosen to gain scale through strategic partnerships.

The latest of these partnerships comes between the Singapore Exchange and Eurex, which announced that they will provide access to each other’s co-location data centers, facilitating easier market access for clients of both.

“We recognized that our customers—which mainly include brokers—need to focus on costs,” said Sutat Chew, head of corporate and market strategy of the Singapore Exchange. “Through this connectivity we can deliver cost savings for the Street. The world gets pulled closer together.”

As part of the partnership, Eurex will be moving its existing access point in Singapore into the SGX co-location data center. In return, Eurex will act as a network service provider to SGX’s customers in Europe. This initiative is expected to be implemented by mid-2012.

The partnership between the SGX and Eurex is the latest of many to be formed by exchanges in recent months.

Brazil’s BM&FBovespa, Russia’s Micex-RTS, India’s Bombay Stock Exchange, Hong Kong’s HKEx and South Africa’s JSE, together forming the BRICS Exchanges Alliance, will begin cross-listing benchmark equity index derivatives on each other’s trading platforms at the end of this month. The derivatives to be cross-listed and offered in the local currency and local trading hours of each of the exchanges will include: Brazil’s IBovespa futures, Russia’s Micex Index futures, India’s Sensex Index futures, Hong Kong’s Hang Seng Index futures and Hang Seng China Enterprises Index futures, and South Africa’s FTSE/JSE Top40 futures. The JSE will also list options on the benchmark futures of the other four member exchanges.

CME Group recently announced a series of deals, including most recently with global exchange network Transaction Network Services, whereby TNS will allow its members access to data from CME’s four designated contract markets as well as access the Dow Jones Indexes.

That announcement came shortly after CME formed a connection with fellow designated contract market Eris Exchange, a U.S.-based futures exchange. The agreement allowed CME to be a channel to distribute Eris Exchange’s market data. CME also has connectivity to Mexico’s BMV and MexDer exchanges, allowing orders to be routed between the venues.

CME formed a cross-border strategic alliance with the Bank of China, under which the parties are to explore and potentially collaborate in a long-term business relationship in a move to expand both companies’ respective businesses. The non-binding agreement provides for the establishment of information-sharing links which cover education, training and marketing. In addition, the companies will focus on future business opportunities facilitating cross-border trading in commodities futures and options, subject to the applicable regulations.

The memorandum of understanding is similar to the one formed between BATS Global Markets and Claritas, a Brazilian asset management firm, to explore opportunities in the Brazilian market, including the potential creation of a new exchange.

NYSE recently announced that it was working with the Tokyo Stock Exchange in a partnership under which they will each offer interconnectivity between each other’s trading platforms, which include cross-distribution of market data.

Deutsche Börse recently announced the formation of a mutual development partnership with the Istanbul Stock Exchange, under which the two exchange operators will work together in several business areas, including the development of new research and technology, assisting each other in marketing efforts, as well as introducing joint indices, in an effort to create a closer cooperation between Frankfurt and Istanbul.

“We are currently observing consolidation and interconnectivity trends in the global financial markets,” Jochen Biedermann, head of international affairs at Deutsche Börse, told Markets Media. “Cross-border relationships are of ever increasing importance in order to keep pace with competitors. Such cross-border relationships are the basis for innovation and one of the main drivers for building bridges between the national capital markets, facilitating the international flow of investments.”

The Tokyo Stock Exchange and the Korea Exchange also formed an agreement, where the two exchanges will offer each other’s stock quotes on their respective websites. In future, they will also look to jointly develop trading infrastructure to allow members to more conveniently place orders on each other’s exchanges, as well as have the potential for cross-listing of exchange-traded funds and derivatives products.

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