Capital markets today: how do you thrive through exchange fragmentation?

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As exchanges evolve and fragment post-Brexit, capital market firms are realising the importance of flexible infrastructure 

Michael James, Capital Markets Sales Specialist, Colt Technology Services

Eleni Coldrey, Business Development Director EMEA for Financial Services, Equinix

In our new, joint Colt-Equinix mini-series, we’re looking at the factors disrupting the smooth operation of markets and what firms can do to protect their longer-term interests and performance. We began by looking at the effects of increased volatility. We will examine the shake-up caused by moves to the cloud and the impacts of the data explosion, but here we delve into what exchange moves mean for capital market firms.  

All change  

Two of Europe’s largest exchanges have already or are nearly complete in shifting their infrastructures this year. Post-Brexit, Euronext has moved its primary data centre from the UK to Bergamo, Italy. The London Stock Exchange Group is moving locations across London as part of a technology upgrade.  

The Euronext move has been particularly challenging, with opportunities and risks reflecting the exchange’s growth after acquiring Borsa Italiana last year. Now, apart from Germany, Switzerland and Spain, Euronext has all the major European equity exchanges sitting on their Optiq platform, bringing the trading of euro stocks and some euro derivatives together in one place. For some observers, it’s been an enormous power swing away from London.  

Initially, the prospect of the Euronext move raised the question of whether other exchanges, especially Multilateral Trading Facilities (MTFs), would also move their infrastructure to Europe. Interestingly, so far, Euronext hasn’t opened the floodgates for migration. Our customers are telling us that firms have only moved resources to Italy that are critical to trading with Euronext.  

However, even this level of exchange fragmentation presents issues for firms operating in capital markets. Do they split out some of their infrastructure, with some in Italy and the rest staying in London? Or do they keep their infrastructure London-based and rely on connectivity to Italy? What will be the latency implications?  

Bonus time to prepare  

Thanks to an extension of the MiFID passport arrangements to at least 2025, firms have more time to plan how they will react to euro-denominated clearing moving out of London.  

Leading firms are using this grace period to make critical infrastructure decisions. They’re realising that being locked into rigid infrastructure that can’t cope with change and is built around single operators in different countries is a mistake.  

Flexibility is critical. In a market that’s restructuring, firms need to be able to respond to business and regulatory changes – and this means aligning with operators that have capability everywhere, providing support and access to any market without having to re-contract.  

Delivering infrastructure ready for anything  

Capital markets firms should prioritise flexible infrastructure that combines market-leading connectivity services with global data centre provision. Finding a technology partner that offers an unrivalled level of experience and expertise within the financial services community is also vital.  

 Colt’s PrizmNet financial extranet offers access to a global capital markets ecosystem of exchanges, venues, trading and regulatory solutions providers, as well as other market participants and service providers. Combined with Equinix data centres, a firm can rapidly connect to new markets and new regulatory systems and exchanges.  

 Find out more about how digitalisation and connectivity can help navigate risk in fragmenting capital markets in our whitepaper. 

 Look out for the next blog post in our joint series, focusing on the implications for capital markets firms of moving to the cloud, coming soon.  

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