We welcome insights into 2018 by Nicky Newton-King, CEO, JSE.
Looking ahead to 2018, what are the most important regional and global trends shaping your exchange or CCP?
Two key trends to watch will be: the pace of technology innovation; and more sophisticated, multi-asset class, post-trade risk management.
In our industry, the pace of innovation in financial technology has increased steadily over the past decade and we anticipate that this will in all likelihood accelerate over the coming year.
While high speed, low latency trading capability will remain relevant and become increasingly applied to new asset classes, we see cyber resilience also dominating the CIO agenda. We are keeping an eye on the use of open source and cloud technology to reduce the total cost of technology ownership. In the data and surveillance space, the use of artificial intelligence and machine generated learning to provide richer insights into the large amount of data generated by core technology systems will require new investments both by exchanges and our clients. The rise of big data, artificial intelligence and machine learning are bringing about monumental changes to how all players within the capital market industry collect, analyse and apply data. Mere access to information will no longer give a sufficient competitive edge: the winners of the future will be those that can best use technology to provide fast and accurate insights enabling them to deploy capital better than their competitors.
In the post-trade space, we see more focus on multi-asset class, post-trade risk management disciplines which give clients maximum offset and thus reduce the cost of trading for clients while improving visibility and risk management across all market segments. In this world, we expect vigorous discussions between the front and back office at both exchanges and clients regarding incentives to trade versus the risk premia applied to those trades. At the same time, we expect global regulators to wrestle with issues of equivalence of, and the cross border risk associated with, systemically important CCPs in other jurisdictions.
Are there any significant regulatory changes on the horizon that may impact the way you do business?
The regulatory reaction to the possibilities described above is crucial.
We expect to see more challenges to the ‘traditional’ market providers as traders and investors embrace more choice in trading venues, infrastructure and products, but care should be taken not to disrupt the stability and integrity of the increasingly interconnected global financial market system.
As European financial market participants are themselves still coming to grips with the implementation of MIFID II, the possible unintended consequences it could have for so-called third country exchanges still need to be considered more fully.
South Africa has recently started its journey to a market with competing exchanges which offer multiple trading venues, and our market may provide an interesting case study for others as we consider the crucial regulatory framework needed to govern multiple trading venues within a single market, all while retaining our hard earned reputation for settlement assurance and trending the price to client down.
There are also a number of local regulatory developments with a direct impact on the JSE that we anticipate to come into effect in 2018. The most substantial is the introduction of our Twin Peaks legislation. While retaining the role of the JSE as a self regulatory organisation, the exchange will itself in future be supervised by two regulators: a prudential regulator in respect of capital, and a market conduct regulator in respect of all other issues.
We anticipate that changes to key regulation will continue to dominate the landscape for financial markets for the foreseeable future, as we see increased scrutiny for global financial markets, products and practices. The trend towards increased transparency, along with a drive to lower costs, are likely to continue dominating the way exchanges operate.
What are your key strategic priorities for the coming year?
Our vision is to be the best global platform in emerging markets by operating South Africa’s most trusted, stable, robust, and competitive market infrastructure. Towards this end, for the JSE, 2018 is a critical year of strategic action as we deliver new state of the art trading and clearing technology to our equity and currency derivatives market, and introduce an electronic central order book market for Government bonds.
We will also be spending significant effort ensuring that our operating environment is resilient and low cost. Interestingly here, is our adoption of more agile behaviour throughout our business: once complete, we expect our capacity as a business to adapt faster and more cost effectively to improve considerably.
As mentioned earlier, the South African market has seen the entrance of a number of new exchanges, and we have welcomed competition. We are very mindful of the systemic risks that market fragmentation brings, and will be working with the regulators to ensure the continued strength and integrity of the local financial market system.
Finally, we will be spending much time with national politicians and policy marks arguing for the adoption of pro-growth and investor friendly policies in the country, since it is only with investment funded growth that we will be able to address the significant socio-economic challenges that we face.
How do you feel the social role of financial market infrastructures is changing?
Financial market infrastructures have a critical role in the economies in which they operate.
Traditionally, that role has been about ensuring the efficient allocation of capital between those that have it (investors) and those that need it (entrepreneurs).
At another level, has been about setting the rules by which people come to participate in that part of the economy operated by the FMIs.
For instance, if an issuer can only list if it is a certain size, access to much needed capital to grow may be unduly hampered and the type of innovation one often needs to solve some of society’s most pressing issues, maybe constrained. Or if minimum capital thresholds for intermediaries are set too high, that might unfairly preserve a certain type of business for incumbents only: set too low, it would introduce systemic risk and potentially prejudice those too vulnerable to protect themselves.
But the area that interests me most (and which I see growing), is the opportunity for FMIs to use their central voice in an economy to argue for policies and introduce products which improve the quality of participation and equity in an economy.
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