#1INTEGRITY THE Nigerian STOCK EXCHANGE THE NIGERIA FINANCE AND INVESTMENT FORUM: New Trading Models – Developing a Technology Driven Market Presented by Oscar N. Onyema CEO June 18, 2013#26 Agenda • Overview of the NSE 1 Technology - An Essential Enabler for the Capital Markets 2 • Key Industry Trends - New Trading Models 3 •⚫ Technology at the Heart of The Exchange 4 • Nigeria on the Road to an Emerging Market 5 • Impact on Market Participants • Conclusions 7 • Q & A 8 18-Junel-2013 THE Nigerian STOCK EXCHANGE The Nigerian Stock Exchange 2#3The Nigerian Stock Exchange THE Nigerian STOCK EXCHANGE 1960 The Nigerian Stock Exchange (NSE) was founded as the Lagos Stock Exchange 1961 Trading began with 19 listed securities - 3 equities, 6 Gov't bonds and 10 corporate bonds 1980s Focus on increasing corporate governance in the market on the back of international exposure via Reuters 1990s The IPF is operational; policy is enacted to encourage foreign participation; and the Exchange automates trading 1970s The Lagos Stock Exchange becomes the NSE and several branches (with trading floors) are opened across Nigeria 2000s Modernization, strong GDP growth and an influx of local and foreign participation ignite the market • . • Since its inception, the NSE has assisted corporations to raise capital through the issuance of equity and fixed-income products The NSE has provided a platform for the FGN, individual States and Local Governments, and other government entities to raise funds for various types of projects through the issuance of debt The objective of the NSE is to be "the Gateway to African Markets" To achieve this vision, the Exchange has embarked on a transformation program to compete effectively in the global marketplace, while meeting the changing needs of our clients, and facilitating the mid- to long-term financing needs of the nation 18-Junel-2013 The Nigerian Stock Exchange 3#4. • . Technology: An Essential Capital Market Enabler Moving with the times The Securities industry is largely driven by technology, whereby the ability to develop a focused strategy for the utilization and deployment of resources is critical. Support for new technology driven trading approaches is key Utilisation of data (including those from the Social Medium) to develop automated trading strategies and enhanced risk management is now mainstream Trading venues, regulators and regulated entities need to keep abreast of the trends to make markets more transparent and fairer for investors and participants Speed and robustness of technology systems are now critical success factors of modern trading venues, underpinning the achievement of scale economics Key Industry trends include, but are not limited to the following: Mobile / E-trading 200M 1.654 1.643 1456 344 1 Co-hosting and Co-Location New technology enabled trading models Reduction in latency and increases in order book capacity 18-JuMarket surveillance technology THE Nigerian STOCK EXCHANGE 2044.70 0.50 L&T ITC 178.05 253 $8 3203-20 1.22 NTPC 216.90 0.02 CIPLA 322.35 1.66 SAIL UNITECH 206.10 0.12 88.30 0.57 The Nigerian Stock Exchange 4#5Industry Trends: The Need for Speed THE Nigerian STOCK EXCHANGE Reducing the time of execution Low latency allows for unnoticeable delays between an input being processed and the corresponding output providing real time characteristics Latency MS 400 350 300 200 100 0 2007 *Source: KPMG - Winning platforms, 2012 Key Trending in Latency reduction LATENCY DEVELOPMENT, 2000 to 2011 Year Latency 2000 10s 2007 350 ms 2008 100 ms 2009 5 ms 2010 <900 us 100 2011 <100 us 5 US 0.9 0.01 2008 2009 2010 2011 Over the past 5 years, most execution venues have placed substantial investment into creating trading infrastructures and platforms that reduce latency, support high volume flow, and disseminate market data. Key theme to consider: Speed and Connectivity • How does your speed of access and level of connectivity ompare to your main competitors? • Do you understand the commercial implications of not updating legacy IT systems? 18-Junel-2013 The Nigerian Stock Exchange 5#6• Industry Trends: A Race to Zero KEY DEVELOPMENTS THE Nigerian STOCK EXCHANGE ORDER BOOK CAPACITY Requirements to act on changes in the market near real-time has led to the Race to Zero NYSE Euronext (US Options) 38,000 1,000,000 • Market participants look to optimize the time required to access market data and initiate and execute a trade • As network providers continue to reduce latency and increase availability, many exchanges have - in turn - optimized their order/trade and market data protocols • This has also led to the evolution of exchanges towards the offering of trading-related IT services that facilitate automated trading and an increased focus on facilitating trading by for example allowing market participants to host physical servers in the same data center as the trading/ matching engines Accordingly, several exchanges have undergone substantial technology upgrades in order to increase their order book capacity measured by Orders Per Minute (OPMs) as shown in the graph to the right 18-Junel-2013 18,000 LSE 500,000 3,000 Tokyo SE 410,000 30,000 Nasdaq OMX 250,000 Before Upgrade 15,000 Hong Kong EX 120,000 After Upgrade 20,000 ASX Trade 100,000 Nigeria 1,000 Before: ~10,000 Bombay SE 30,000 200 JSE 30,000 0 1,500,000 *Source: KPMG - Winning platforms, 2012 The Nigerian Stock Exchange After Upgrade: >250,000 1,000,000 500,000 Orders Per Minute (OPM)#7New Trading Models THE Nigerian STOCK EXCHANGE 30 <<#> 888 24.com <m> 18-Junel-2013 по 08 Algorithmic Trading . Algorithmic trading, also called automated trading, black-box trading, or algo trading, is the use of electronic platforms for entering trading orders with an algorithm which executes pre-programmed trading instructions whose variables may include timing, price, or quantity of the order, or in many cases initiating the order without human intervention Customer Driven Electronic Trading Buyers and sellers of securities are provided with electronic access to trade in the market by their broker dealers via tools that are easily accessible and appropriate to support the customer business. Institutional investors are provided with terminals that link up to the broker dealer order management system while retail investors are provided with access to trade via the internet using a smartphone, tablet device or a traditional computer Direct Market Access • This refers to granting institutional investors (known as the buy side) and other traders wishing to trade in securities access to do so directly from the information technology system of their broker-dealer firms to the Exchange's order book, rather than the normal trading method of the buy-side companies passing their orders to the broker- dealer firms trading desk for execution. The technique is often combined with HFT High Frequency Trading • ' High-frequency trading (HFT) is the use of sophisticated technological tools and computer algorithms to rapidly trade securities (a form of Algo trading). HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. By 2009, HFT accounted for 61% of the US trading market share, but has since reduced to 51% in 2012 The Nigerian Stock Exchange 7#8Technology at the Heart of the Exchange THE Nigerian STOCK EXCHANGE TECHNOLOGY AND SOME OF THE NSE'S 5 PILLARS FOR GROWTH TARGETED BUSINESS DEVELOPMENT EFFORTS Today's Technology X-Value Support on 3 of the 5 Products by 2016 Next Wave Co-hosting and co-location strategies DMA, Algo and HFT Mobile and Online Trading Derivatives from 2014 STRONG REGULATORY ENVIRONMENT Today's Technology • • X-Issuer X-Compliance Report • Broker TraX 21st CENTURY TECHNOLOGY STRATEGIES Today's Technology X-Net New NSE Website Trade Automaton Next Wave Whistle Blowing Website Broker Dealer Compliance Market Surveillance GROWTH-ENABLING MARKET STRUCTURE Today's Technology X-Quality Reports Next Wave . Transaction Cost Analysis Short Interest Report Next Wave • Launch of X-Gen NSE Web 2 (Website Upgrade) Self Serve Market Data Services 18-Junel-2013 The Nigerian Stock Exchange 8#9Nigeria On the Road to an Emerging Market THE Nigerian STOCK EXCHANGE CRITERIA FRONTIER MARKET NSE'S CURRENT EMERGING POSITION MARKET At least some Significant Significant Openness to Foreign Ownership At least partial Significant Significant Ease of Capital Inflow/Outflow Efficiency of the Operational Framework Stability of Institutional Framework No. of Cos. with Full Market Cap No. of Cos. with Float Market Cap No. of Cos. with Security Liquidity Repatriation of Capital and Income Foreign Ownership Restrictions Broker Competition To Ensure High Quality Services 18-Junel-2013 Modest Modest Good & Tested Modest Modest Modest 2/$280M 7/ $560M 3 / $560M 2/$14.5M 4/ $280M 2/ 2.5% ATVR 1 / 2.5% ATVR Modest Significant Modest Low Low Low Low The Nigerian Stock Exchange 3/$280M 3/15% ATVR Significant The NSE meets 7 of the 9 criteria for an Emerging Mkt 5m Investor Accounts (at CSCS) 100m Mobile Phones 45m with Internet Access 85m B/w ages of 15 – 64 250+ Broker Dealer Firms 200 Listed Companies (Main Board) N2,5Tr in Pension Assets N10Tr in Imports for 2011 . Modest • GDP @ 6.5%+ • ASI up 19%+ YTD#10Technology for Capital Markets' Emergence THE Nigerian STOCK EXCHANGE Monitoring and Capacity Planning Trading Platform Market Database End to End Process Automation Enabling Technologies Networks Business Continuity Order Management System 18-Junel-2013 The Nigerian Stock Exchange FIX Protocol 10#11| Impact on Exchange Participants . Local Brokers . 1/17/2013 Order Management Systems Adoption of FIX Implementation of Minimum Technology Standards Cost reduction by scaling up Simplicity and transparency of access by clients Development of New Business Strategies Upskilling on new products and trading techniques Global Brokers Simple connections, FIX Easier and Faster Market Access Higher Profile for Nigerian Market High volumes/low latency End Users • Mobile and flexible access to trade securities Online/Real time price transparency Online Portfolio management and valuation Out of hours order Submission Reach of the market regardless of location ange THE Nigerian STOCK EXCHANGE 11#12Changing The Customer Experience ✓ Fastest Trading Engine in Africa ✓ Fast Remote Trading Capabilities ✓ Low Latency, High Performance Platform ✓ Wider Access to "Real Time" Data ✓ Mass Population and International Reach ✓ Unparalleled Automation and Connectivity ✓ Supports latest securities trading paradigms THE Nigerian STOCK EXCHANGE#13Q & A#14Thank You INTEGRITY THE Nigerian STOCK EXCHANGE RC: 2321 Stock Exchange House 2-4 Customs Street P.O. Box 2457, Marina Lagos Island, Lagos, Nigeria [email protected]