Driving the Electronic
Trading Evolution

Twenty-seven years ago, traders would stand in the Johannesburg Stock Exchange calling out trades from the physical floor of the exchange. “Trading has come a long way since then,” says Merlin Rajah, Head of Equities Electronic Product at Absa Corporate and Investment Banking. “We have evolved from floor traders using hand signals to electronic traders using mathematical indicators; from only traders within broker firms able to trade on the exchange to a broker’s clients executing trades via direct market access in the central order book. We’ve seen this move from manual execution on one exchange to autonomous computerised trading models across multiple exchanges and asset classes simultaneously, with complex and expensive infrastructure based in various colocation facilities around the world.”

Field-programmable gate arrays (FPGAs) were the natural next step in that evolution, giving traders unparalleled speed and flexibility in execution globally and South Africa was no exception.

“Now, a large part of an electronic trader’s role within the sell-side program trading desk is to place and/or monitor the quantitative parameters that are enforced on an order, and to complement the algorithms, knowing when and how to tweak based on liquidity and market events during the day,” Rajah adds.

Further to this, he says, to be a superior electronic trader/electronic sales trader one needs to have a deep understanding of exchange and broker systems, system processes, exchange pricing, and overall in-country exchange(s) market structure and regulatory changes. “A passion for mathematics and programming is also important to understand the sell-side algorithms,” he says, “as well as a basic network understanding to piece together solutions for clients – and lastly, a collaborative personality to be able to work with highly demanding clients.”

Trading solutions can become highly complex when overlayed across multiple exchanges, time zones, each with its own trade and order types. “There are also trading sessions and time-in-force orders that one has to be cognisant of,” says Rajah. “Building and maintaining adequate controls of our clients’ orders gives us, the regulators and our clients have comfort that sufficient measures are in place to ensure minimal errors or problems.”

For high-frequency trading (HFT) clients, however, onerous risk controls cause delays in executions, even though fractions of a microsecond. Many large global clients would either prefer not to have a broker do this, if rules permit, or work with the broker that has the fastest access.