Turkey Courts High-Speed Traders as Exchange Faces CompetitionJohn Detrixhe and Constantine Courcoulas
Turkey’s stock exchange will rev up its trading engine this year with Nasdaq OMX Group Inc.’s help, seeking to court the latest generation of computerized strategies.
The upgrade of the core trading software at Borsa Istanbul’s equities market using Nasdaq technology will go live on Sept. 21, according to Chief Executive Officer Ibrahim Turhan. The exchange is offering co-location, which lets high-frequency trading firms react faster to price fluctuations.
“All market operations will take place on that infrastructure,” Borsa Istanbul’s CEO said during an interview in London on Tuesday. “We are going to start co-location services, and, as an extension to that, high-frequency trading and quantitative trading.”
The project comes as foreign market operators armed with the most advanced technology, Bats Global Markets Inc. and London Stock Exchange Group Plc, seek to enter the $266 billion Turkish stock market. As computerized trading techniques have become enmeshed with the global financial system, market operators have been forced to evolve with them, upgrading to faster platforms and providing services.
After enhancing its equity market, Borsa Istanbul plans a second phase of the project: shifting its derivatives, fixed-income and commodities markets over to the new technology in 2016, Turhan said.
Nasdaq bought a 5 percent stake in Borsa Istanbul as part of the agreement, which was announced a year ago. Nasdaq has similar arrangements with markets around the world. This week, it revealed a project to upgrade a Japanese derivatives market.
Under co-location agreements, traders put their computers in the same building as the exchange’s servers, shaving off fractions of a second between trades and enabling speedier strategies. The service is a hallmark of modern trading.
While Borsa Istanbul is currently the only market for Turkish securities, that probably won’t last.
“It will be inevitable that competition will come,” said Steve Grob, global director of group strategy at Fidessa Group Plc. “They’re going to have to compete with more contemporary venues, which will be an opportunity and a threat for them.”
Bats Chi-X Europe and London Stock Exchange Group’s Turquoise both hope to enter Turkey. Both have established themselves as pan-European rivals to more traditional exchanges.
Turhan said Turkish market regulations mimic the European rules known as MiFID, or Markets in Financial Instruments Directive. The 2007 rule change is credited with sparking competition and reducing trading costs by allowing firms like Bats and Turquoise to win business.
“Since our capital markets regulation is in line with MiFID, we would be neutral against such attempts,” Turhan said of greater competition.