INTRODUCING A NEW CONCEPT IN TRADING: THE EMERGING MARKETS TRADING HUB

Robert Bath, VP of Global Solutions at Digital Realty

The financial markets in the developed world are supported by sophisticated technology. Yet the data centres and connectivity that support emerging markets fall short of the security and robustness expected as standard. Enter a new concept in trading that starts from a totally different perspective. The emerging markets trading hub introduces bi-directional access for emerging and developed markets alike.

The concept of an emerging market-trading hub that connects to exchanges around the globe has become a reality thanks to the partnership of Digital Realty and trading technology specialist GMEX Technologies Limited (GMEX Tech).

This is a radical new concept in trading – linking far-flung trading exchanges to investors, providing visibility and real-time access to assets on these exchanges and new sources of liquidity. Essentially the emerging markets trading hub brings the market to the liquidity rather than the other way around. The impact on developing markets is potentially enormous.

By improving access to liquidity, the hubs (the first of which is in Digital Realty’s London Chessington data centre) will help overcome one of the biggest challenges facing emerging markets. Many have valuable, tradable assets, and even the conditions conducive to trade, such as favourable economic policy. However, these assets are often difficult to see and/or access forinterested investors due tothe market’s often-remote location, or costly hoops. But a new business and technological approach can overcome that.

Working with GMEX Tech, Digital Realty is using its global network of data centres to help create a neutral site in a developed market location. It will provide market participants with direct and secure access to the London trading hub, with other hubs being planned for the United States and Asia in 2016.

Participants will have the opportunity to place their own trading servers next to GMEX Tech‘s servers running the various emerging market exchanges it partners with globally in Digital Realty’s London data centre.This further solidifies their links to their chosen hub.

The emerging markets trading hub is thereby a space where new and emerging markets, together with existing trading ecosystems – the investor community, data vendors, independent software vendors, sell-side, traditional exchanges etc. – are effectively able to operate in a central, and also neutral, location.

Participants in the new trading hubs will benefit in a range of ways. Whether it means crossing time zones or crossing asset classes, these hubs break down barriers and generate a whole new sphere of trading activity. For established players, the hubs may create new trading opportunities and revenue streams. On the sell side, they may open up access to a huge pool of prospective new clients. Market operators may be able to extend beyond their own geographical boundaries and provide participants with access to a broader range of asset classes including securities, commodities, and derivatives.

What’s clear is that emerging trading markets should no longer be hostages to the tyranny of distance. The goal is that the hubs will enable exchanges in emerging markets to operate as though they were physically located in one of the world’s financial capitals. Compared to existing cross-listing relationships, the hubs will better allow true equal partnerships to be created between participants.

The relationship aspect underpinning the hub is unique and important. This isn’t just technology being delivered into an emerging market project or exchange.It creates a link to a bigger network of participants whose interests are aligned.

Until now, many emerging market players have been hindered by limited access to core markets in financial centres. Many smaller markets simply do not have the technology or knowledge to establish the required linkages into large global exchanges. The planned hubs will lower this barrier.

The partnership between Digital Realty and GMEX Tech also means that the hubs will provide a secure, open, and agile trading platform. Housed in purpose-built data centres and connected by fully managed and redundant network links, the hubs will be operational around the clock.

The hubs have been designed from the ground up with users in mind. They are ‘participant’ rather than ‘exchange’ focused. Digital Realty’s goal is that they will essentially become one-stop-shops that provide users with access to multiple exchanges and sources of liquidity. At a time when there is increased interest in new and emerging markets, this is a real game changer.