New trading service for the MTA market

1
New trading service for the MTA market Migration
to the TradElect trading platform
February 8th 2008 London Stock Exchange 10
Paternoster Square - London
2
Contents
Introduction The market Rules and the new market
model Characteristics of the new MTA
service Migration plan to the new service Contacts
3
Objectives of our presentation today

• The aim of our presentation today is to introduce
  the main aspects concerning the migration of the
  Italian equity trading activity to TradElect, and
  in particular underlying
• 1. the chosen market model, the market
  participants configuration and the
  microstructure
• 2. the main differences between TradElect and
  Affari platforms (which are the new
  functionalities available on TradElect and the
  functionalities which wont be migrated and
  therefore wont be available anymore)
• 3. the technological, infrastructural and
  connectivity characteristics.
• We also take this occasion to share with you the
  next steps of the migration plan and the
  preliminary activities which have to be carried
  out.

4
TradElect World beating performance
TradElect is fundamental to the Exchanges
strategy to increase innovation and efficiency
within our ever more international market place,
in order to grow liquidity and provide more
trading opportunities for all.

• TradElect features
• Unprecedented levels of performance
• One of the fastest equity markets in the world
• Includes functionality that delivers MiFID
  compliance
• Scalable, flexible and managed by a regular
  program of upgrades and enhancements The
  Technology Roadmap.
• No latency disadvantage for Italian firms

• Current average trading system latency is 6msec
• Order entry (scalable capacity) is 4,200 orders/
  sec

5
The sharp increase in equity turnover
() Ratio between turnover and average
capitalization Source Borsa Italiana - RD -
latest update 28 December 2007
6
Ranking of Borsa Italiana in Europe
Total shares turnover on electronic matching
trading systems Year 2007 daily average, euro
million
0
2 500
5 000
7 500
10 000
12 500
ENXT
LSE
DB
BME
BIt
OMX
SWX
Source FESE, BIt - RD - latest update
December 2007
7
Ranking of Borsa Italiana in Europe /2
Total shares turnover on electronic matching
trading systems Year 2007 daily average, trades
0
125 000
250 000
375 000
500 000
ENXT
LSE
DB
BIt
OMX
BME
SWX
Source FESE, BIt - RD - latest update
December 2007
8
Ranking of Borsa Italiana in Europe /3
Turnover velocity (order book trading) Year 2007
75
100
125
150
175
200
BIt
DB
BME
OMX
ENXT
SWX
LSE
FESE
() Ratio between turnover and average
capitalization Source FESE, Borsa Italiana - RD
- latest update December 2007
9
International clients the trend of growth
TOT NUMBER
43.2
37.2
31.7
31.3
27.3
21.3
14.6
10.5
8.5
4.3
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Int. Intermed.
6
12
16
23
30
35
40
39
45
50
Tot (Dom. Int.)
138
142
152
157
141
128
128
123
121
123
Source Borsa Italiana Update December 31st 2007
10
Foreign investors participation is high
Monthly shares turnover (euro million)
Foreign as of total
Source Borsa Italiana - RD - UIC - latest
update August 2007
11
Contents
Introduction The market Rules and the new market
model Characteristics of the new MTA
service Migration plan to the new service Contacts
12
New Market Rules
From a regulatory point of view, by April 2008
the new market rules will be made available to
the intermediaries. The new Rule Book, therefore,
will be amended in order to include the new
characteristics of the trading platform. Certain
topics, such as the use of interconnection and
admission of intermediaries discipline (e.g. the
use of Trader Groups), will be subject to
consultation with the intermediaries. Borsa
Italianas new Rule Book will be approved by the
end of the first half of 2008, according with the
ordinary procedure (Board of Directors and
subsequent Shareholders Meeting approvals) and
will enter into force simultaneously with the
migration.
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Main characteristics of market model

• The main characteristics of the new trading
  platform TradElect are subdivided as follows
• Market structure
• Participant structure
• Market model

Market structure
TradElect provides for the hierarchical
organization of the market into segments, sectors
and securities The market segment identifies a
set of securities traded according to a common
micro structural model (e.g. opening auction,
continuous trading and closing auction). The
market sector identifies a set of securities
characterized by a common sequence of market
phases and market periods (e.g. Blue Chip shares
included in the SP/MIB index). The security is
the instrument with which the trading book is
associated (e.g. ordinary shares of the issuing
company XYZ) For further details on the new
configuration of the Italian market structure on
TradElect, please refer to the Document attached
to the Communication of 1 February 2008
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Main characteristics of market model
Participant structure

• Each intermediary can develop its access to the
  market, taking account of the following
• Member ID represents the highest level for
  defining market participants within TradElect. A
  Member ID may be subdivided into many Trader
  Groups and its code is unique, assigned by Borsa
  Italiana.
• Trader Group may be used, for example, in order
  to identify homogeneous trading or different
  braches belonging to the same legal entity. Each
  Member ID must have at least one Trader Group.
  Trader Groups are associated with all the
  authorizations to engage in trading and the
  related controls on TradElect.
• Trader ID is the maximum level of detail within
  TradElect and may be used, for example, to
  identify individual traders. However, their use
  is optional.

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Main characteristics of market model
TradElect new functionalities

• The main new characteristics of TradElect
• the definition of tick sizes (dynamic tick) in
  relation to the price of the orders entered
• the non anonymity of Specialists orders quotes
  (executable quotes)
• the automatic activation of a volatility auction
  phase at the attempt to execute trades outside
  the price tolerance levels
• the new algorithm for the determination of the
  indicative auction price
• the extension of 5 minutes of the closing
  auction phase when the indicative price is not
  valid
• parked orders which allow to enter orders (in
  auction and continuous trading phase) with a
  deferred validity
• For further details please refer to the Document
  attached to the Communication of 1 February 2008

16
Main characteristics of market model
and Affaris functionalities no longer
available

• The main characteristics of Affari that will no
  longer be available on TradElect
• the validation of the price of orders with
  respect to the control price
• the cross order functionality
• the cancellation of principal vs principal
  trades executed by the same participant
• the definition of tick sizes in relation to the
  reference prices of the previous trading day
• the anonymity of the Specialist quotes

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Contents
Introductions The market Rules and the new market
model Characteristics of the new MTA
service Migration plan to the new service Contacts
18
The new technological platform TradElect

• Latest generation technical platform launched by
  LSE on June 18th 2007.
• Currently supports trading on the LSE, JSE and
  DTS markets for equities, ETF and covered
  warrants.
• Almost unlimited processing capability (currently
  4.200 tps) thanks to the extreme horizontal
  scalability of the system each transaction is
  made of independent processing units that are
  processed by concurrent systems.
• TradElects latency is 4 times inferior to the
  current one (6 ms as opposed to 24 ms as of now).
• High reliability and system availability the
  active-active configuration guarantees a hot
  recovery even in case of total unavailability of
  the primary site.
• Maximum flexibility in the configuration of the
  different market models.

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Segments that will be migrated to TradElect

• The segments that will be migrated in phase I are
  the following
• Blue Chips (Shares, Warrants, Convertibles,
  Pre-emption rights)
• STAR (Shares, Warrants, Convertibles, Pre-emption
  rights)
• MTA International
• STANDARD 1 and 2 (Shares, Warrants, Convertibles,
  Pre-emption rights)
• Expandi 1 and 2 (Shares, Warrants, Convertibles,
  Pre-emption rights)
• Close OICR
• The After Hours Market will remain on the current
  AFFARI platform according to the current
  schedule, with the same trading facilities and
  linkups
• Phase II, which will be completed during 2009,
  will concern the following markets
• MOT/EuroMOT
• SEDEX
• ETF Plus
• MAC
• TAH

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Central technological infrastructure

• Central systems (TradElect/Infolect) located in
  London in two different data centres with an
  active-active configuration.
• Access sites (Market Hubs) located at the two
  data centres in Milano and Torino.
• The central systems MDF/DDM and the clearing
  systems of CCG are hosted by the 2 market hubs.
• The 4 sites are linked through high capacity
  (10GBps) fiber optic connections delivered by
  different carriers and form a single distributed
  operational environment (backbone).
• The backbone includes the 2 central sites of
  SIA-SSB where the Post-Trading (X-TRM, Express)
  central systems are located.
• Access for members located in Italy via
  BIt-Network for those in UK via Extranex. No
  intervention at the members premises is required.

21
Markets connectivity

• Flow control mechanisms (WAN emulator) to
  guarantee equivalent network latencies for all
  the market participants, regardless the
  geographical location (UK, Italy and Continental
  Europe) will be provided.
• Market proximity services will be provided for
  market making and algo trading systems.
• Access to the markets will be provided both via
  the Borsa Italiana network (BIt-Network) and the
  London Stock Exchange network (Extranex).
• No interventions on the peripheral network
  infrastructure (BIt-Network) at participants
  premises will be required the possible capacity
  upgrade (10 Mbps) of the lines due to the chosen
  info service will not have any impact on the
  Clients activity.
• For UK connections, the migration of the current
  OMX network to the Extranex network is expected.
  The almost total reachability of all the UK
  members through the LSE network (with a 100 Mbps
  capacity) has already been verified. No
  interventions at the participants premises
  should be necessary.

22
Access to the trading functionalities

• Access to trading functionalities is provided
  through one or more USAP (User Service Access
  Point), minimum access units, wich define a
  logical group of connections to the market.
• Each trading USAP guarantees access to 4
  independent secure interactive sessions. Each
  information USAP guarantees access to 16
  independent secure interactive sessions through
  which is possible to download own order and own
  trade book and re-request missed messages from
  Infolect.
• Each trading USAP session is capable of managing
  up to 600 messages/second (2.400 msg/sec per
  USAP).
• Logical access is provided through the
  asynchronous TradeElect application protocol (No
  APIs) so that all interconnected systems will be
  able to connect to the service regardless the
  Operating System used.
• The introduction of this new application protocol
  will require the conformance test of the
  interconnected applications of members and ISVs
  - not yet compliant with the new interface.

23
Access to the information functionalities

• The price feed of the MTA and Expandi markets
  will be disseminated both via the MDF/DDM
  service and the Infolect service.
• The price feed of the other Borsa Italiana
  markets (MOT, SEDEX, ETFplus and IDEM) will be
  disseminated only via MDF/DDM which will also
  include the LSE market price feed.
• The main features of the Infolect service are
• Full information feed including all orderbook
  changes (orders and trades) occured on the
  trading book (full orderbook depth)
• Available profiles Service Channel (10 Mbps)
  with flow control or Performance Channel (100
  Mbps) at low latency
• Logical access via a new application protocol
• Communication protocol UDP multicast with
  interactive services via TCP/IP (query and
  realignment)
• snapshot service not available (book at 5, 10
  and 20 levels).
• During 2009 version 2 of Infolect will be
  launched and it will include and extend the
  functionalities of both services for all the
  markets of the new group.

24
Logical architecture of the new service
BIt Clearing Settlement systems
CDW (LSE Data Warehouse)
DW2 (BIt Data Warehouse)
X-TRM
I-BUS
TradElect
Infolect
MDF/DDM
SP Markets Supervision systems
Network delay for latency equalisation
BIt Net
Extranex
UK Customers
No UK Customers
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MDF/DDM configuration

• Transactions (orders) are sent by participants
  interconnected systems to TradElect central
  systems (trading gateways) through the TradElect
  application protocol.
• TradElect disseminates all the ordebook changes
  to MDF/DDM through an internal protocol.
• The MDF/DDM central systems process and build up
  the orderbook (variations and snapshot) and
  disseminate the feed according to current method.
  
• The interconnected systems receive the MDF/DDM
  data feed through the current EMAPI protocol.

TradElect
MDF/DDM
Trading Gwy
Tax Srv
Orders
RT Info unicast
BIt-Net/Extranex
Native APIs
MDF EMAPI
Clients Front-end Systems
26
Infolect configuration

• Transactions (orders) are sent by participants
  interconnected systems to TradElect central
  systems (trading gateways) through the TradElect
  application protocol.
• TradElect disseminates all the ordebook changes
  to Infolect through an internal protocol.
• Infolect central systems disseminate the data
  feed received from TradElect via multicast.
• Interconnected systems receive Infolect data feed
  through native protocol and build up the market
  orderbook. Realignment is provided through TCP/IP
  interactive channels.

TradElect
Infolect
Trading Gwy
Output Gwy
Orders
UDP Info multicast
BIt-Net/Extranex
Native APIs
Native APIs
Clients Front-end Systems
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Contents
Introductions The market Rules and the new market
model Characteristics of the new MTA
service Migration plan to the new service Contacts
28
2007
2008
Activities
December
January
February
March
May
June
August
July
April
September
Development and Test
Product Test
R3 Test completed
TE R3 development
Legend
TE R3 test
Key milestones
MDF ready for integration test
MDF development
R3 specific activities
X-TRM adaptations
Project team activities
X-TRM ready for integration test
Itf to External Systems
Ext Interfaces ready for integration test
Dependencies link
DW Test completed
DW development and integration test
Infrastructure and Operational Readiness
Integration Test
Integration Test completed
Backbone connectivity
Migration to Extranet completed
UK participants connectivity
Network upgrade completed
Italian participants nw upgrade
Service readiness
Market migration
CDS Release 1
CDS with X-TRM and R3 functionalities
Configure CDS for the Italian market
Customer Testing CDS MTA
Market conformance Test
Rehearsals
Technical Rehearsals
Customer Rehearsals
29
Migration plan (1)

• The main milestones are
• 1 February availability of TradElect Infolect
  interface specification.
• 7 March availability of MDF/DDM interface
  specification
• 31 March availability of TradElect and Infolect
  external test environment (Customer Development
  Service or CDS).
• 30 April availability of MDF/DDM external test
  environment (Customer Development Service or
  CDS).
• 1 June availability of the conformance test
  service for TradElect, Infolect and MDF/DDM
  (Conformance Test Service or CTS).
• Conformance test sessions will be perfomed in a
  dedicated environment (CTS) and will be scheduled
  by BIt Systems personnel from June through August
  2008.

30
Migration plan (2)

• Conformance test is mandatory for all the
  proprietary and third party software applications
  that are not compliant with TradElect, Infolect
  and MDF/DDM services.
• BIt Systems provides local technical support on
  TradElect application protocol, functional
  support on the new platform and perfoms
  conformance test sessions.
• During September 2008 2/3 public test sessions on
  the production environment will be performed.
• The official live date of the new service
  currently planned for September 2008 will be
  communicated to market participants in due time,
  and confirmed according to the outcome of the
  public test sessions.

31
Preparatory activities to the migration

• We recommend to confirm us which data feed
  service you will use as soon as possible in order
  to let us proceed with the upgrade of your leased
  lines. BIt Systems and LSE will support you
  during your decision process.
• In order to correctly configure the CDS and to
  let us proceed with the proper configuration of
  your peripheral market access infrastructure,
  please provide us with the following information
• Number of interconnected systems
• Number of USAPs and their profiles
• Member ID, Trader Groups, Trader ID
  configurations
• On the migration date, all traded instruments on
  the MTA and Expandi markets will be automatically
  transferred onto the TradElect system.
• Long orders will not be transferred to the new
  environment and will have to be managed by each
  trading participant.

32
Contents
Introduction The market Rules and the new market
model Characteristics of the new MTA
service Migration plan to the new service Contacts
33
Contacts
Borsa Italiana Membership Dept. 39 02
72426207 BIt Systems Clients Services
39 02 72426765 e-mail migrazione-mta_at_borsai
taliana.it Development, test and conformance
test tradelect-support_at_borsaitaliana.it