An innovative solution to consolidate African and Middle Eastern markets

Fragmentation in developed markets

The fragmentation of liquidity occurs when a security is traded in multiple trading venues.

The ease of access to technology and regulation such as RegNMS (US) and MiFID (Europe) has increased the pace of fragmentation by removing barriers that formerly prevented the creation of new Exchanges.

What technology helps fragment, technology helps put-together.

Developed markets overcome fragmentation by using liquidity aggregation technology.

Fragmentation

Fragmentation in emerging markets

Fragmentation in emerging markets is the fragmentation of market capitalization.

Fragmentation occurs due to the existence of small ‘ponds’ of liquidity in the form of a domestic or regional stock exchange with a few noteworthy listings.

These few noteworthy listings have limited access to capital due to the limited audience the domestic exchange could provide.

Fragmentation (cont.)

What if ?

The small ‘ponds’ of liquidity could be opened out to a wider audience without the complication of cross border listings?

A large pool of liquidity in terms of market cap could be created to attract regional and global attention?

The solution is an easily accessible technological solution and is least intrusive on current regulation and practices?

The solution is a model that solves liquidity fragmentation in developed markets and is technology that is already available?

The Possibilities

The solution is a liquidity aggregation and access tool.

We call it a Smart Order Router (SOR).

The Solution

What is a Smart Order Router?

A Smart Order Router is a tool that aggregates liquidity by consolidating market data from multiple execution venues and provides direct market access based on simple and complex routing logic.

The SOR

Functional Overview

• FIX Order Input Gateway• Proof of Best Execution• Displayed Liquidity Aggregation and Heat

Mapping of Dark Liquidity• Configurable Routing Logic based on

latency, liquidity, trade volume and execution quality

• Execution Management across internal and external venues

• Intelligent Order Filtering

Technological Overview

• Flexibility and Faster Time to Market through “BID”• Performance and Scalability through partitions• High Availability due to application-level fault tolerance• External Connectivity through Programmable Gateways• Efficient use of bandwidth through “Spatial Subscription”

High Performance

10,000 orders per sec, under 1ms latency

Partition 1 10,000/sec

Partition 2 10,000/sec

SOR Connectivity

Five steps to consolidation

• Step 1 – Participating exchanges create SOR Utility.

• Step 2 – Member Firms of participating exchanges establish relationships for client sharing, exposure limits and clearing & settlement.

• Step 3 – Decide on industry standard protocols for common access point connectivity (FIX/ ITCH/FAST).

• Step 4 – Decide revenue model – fee per route and/or market data fee and settlement guarantee fee.

• Step 5 – Install technology, establish connectivity and run.

Proposed Workflow

Exchange names used only for purposes of illustration

An Alternate relationship

• Instead of a broker – broker relationship, an alternate Exchange – Exchange tie up can be done

• In this scenario, Exchanges would take on the settlement responsibility, on behalf of it’s member firms and guarantee settlement

• Each Exchange would then become a settlement partner of the other Exchanges it is connected to

• The advantage is that the Exchange is more of a trusted entity than a broker firm, in a regional sense

Questions and Answers

jit@millenniumit.com

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