Proximity Hosting Continues to Open Up New World for the LME
Recent moves by the London Metal Exchange to improve electronic trading access to the 135-year-old bourse are paying dividends in its quest to increase volumes and revenues.
Last December, the world’s leading base metal market, which maintains Europe’s last open outcry trading pit, allowed proximity hosting for the first time which meant members and clients could locate their trading systems close to the exchange’s data center to speed up orders. Proximity hosting aids ‘black box’ or algorithmic traders as well as other buy-side firms who want to reduce the time between an order and execution.
And earlier this year, the LME went live with a new version of its electronic trading platform, called LMEselect. Volumes at the LME have surged in recent years. The commodity exchange recorded a monthly volume record this September and this is on top of the record trading volumes posted in 2011, which increased by 21.9% over the previous year, which itself was a record year. Many of these trades were conducted electronically.
One trading technology vendor, which offers its buy-side clients low latency access to many of the leading exchanges around the world, has established a new link to the LME to tap into this growing market.
“The core equities space is struggling,” Tanuja Randery, chief executive of London-based MarketPrizm, told Markets Media. “Everyone is looking for opportunities in other asset classes. We see commodities and futures, as well as FX, as the future. And given that the LME have introduced a new IT platform and opened up to proximity hosting, we felt the time was right to offer connectivity to the LME.”
MarketPrizm, which in the past focused mainly in the equities sphere, has been branching out into other asset classes. It now offers market access to many of the main listed derivatives venues including Liffe, Eurex and CME and has this year launched services in Australia, Japan and Singapore. And Randery believes that MarketPrizm’s clients will only benefit from the pending merger of the LME by Hong Kong Exchanges and Clearing (HKEx), the Hong Kong stock exchange—and the potential shift in global commodities trading that this may bring to Asia—as it will complement MarketPrizm’s infrastructure services globally.
“Related to the fact that we already do listed derivatives, if you look at the inter-relationships between Liffe, Eurex, CME, LME, IntercontinentalExchange, Hong Kong and India—you connect the big global futures platforms together,” said Randery. “The LME is very clearly a very big player in this.
“With the LME-Hong Kong merger we could see that this was rapidly going to extend into Asia. Given that we went live in April in Singapore, Tokyo and Australia and we are going live in Hong Kong in December, it has tied all the dots in terms of global access.”
MarketPrizm is providing its buy-side clients with market access services to the LME including real time data, order routing, managed hosting and low latency networking. MarketPrizm says the service is designed for latency-sensitive investors who wish to trade on the LME.
“For global investors looking to access this highly liquid commodities market, MarketPrizm is able to provide a fully managed market access solution to financial firms with the best latency in the market for accessing the LME,” said Randery.
“We can connect the buy side with low latency data and connectivity into a broker’s DMA [direct market access] platform for execution and we can provide brokers with an outsourced DMA infrastructure service enabling a faster on-boarding program for their customers. The LME is an important market for investors in the commodities trade and with the pending HKEx merger, our service will enable customers to leverage both markets in the near future.”
Over 95% of the LME’s business is international and the link-up with MarketPrizm, the latest such deal by the LME, is a bid by the London-based exchange to improve connectivity to key locations such as Asia.
“We are delighted that MarketPrizm has connected to the LME’s electronic trading platform, LMEselect, extending the LME market data reach to their extensive client base,” said Chris Evans, head of business development at the LME. “The LME’s recent proximity hosting investment, offering reduced network latency access, continues to attract new users to the market.”
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A similar service is available on the BIDS platform in the US equity market.