In late 2019 Spectrum Markets launched the first exchange to offer 24-hour trading on a pan-European basis. The multilateral facility for securitised derivatives trading was designed with retail investors in mind. It was built on a "sheet of white paper" by Chief Operating Officer Christoph Lehl – the former head of infrastructure at Eurex – and his IT team on infrastructure running primarily from two co-located data centres in London.
Along with that unusual 24/5 access, Spectrum in 2020 became the first trading venue to offer intraday issuance simultaneously across ten European markets. And it's done it with a record of 100% uptime.
We sat down with CEO Nicky Maan and COO Christoph Lehl to ask why, and how.
Spectrum Markets CEO: "These traders are very active..."
European retail investors are not as prolific as they are in the US. There’s some 4.5 million in the UK trading single stocks in the equities markets; there’s some 500,000 across the continent trading derivatives.
It’s not a huge number, but it’s growing fast. “These traders are very active”, Spectrum’s CEO Nicky Maan told The Stack. “These are traders that have multiple strategies to trade in securitised derivatives across all of the countries and in different sets of instruments. It’s a market worth about £1 billion and growing at about 30% annually.”
Perhaps curiously, given what you may have heard about Europe’s single market and the ease with which technology has melted borders around the globe, exchanges across the continent tend to operate in siloes, Maan emphasises: “You would expect with the perceived harmonisation across the major European countries that exchanges and settlements etc. would work in the same fashion. But the current landscape of exchanges… it’s just not the way they work.
"They tend to have a group of German exchanges, a group of Italian exchanges, a group of French exchanges that I think just by way of history and establishment operate in silos.
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“Therefore the ability to have pan-European businesses, to have trading and settlement seamlessly across different countries is not as common as you might think it is; that actually turned out to be quite a big innovative point for Spectrum to be built to have that kind of functionality."
Spectrum Markets -- an IG spin-off -- set out with the firm intent of offering 24-hour trading, five days a week; another novelty for its target market and one that meant it had some convincing to do of regulators. The company chose to base itself in Frankfurt -- in large part because it favoured working with Germany's influential BaFin regulator. (European financial market actors need to build relationships with local regulators to ensure conformance with local rules; across the continent there's something of a "committee" system of local regulators; within that there are more and less influential voices: BaFin is one of the more influential ones...)
COO Lehl tells The Stack: "We had the chance really to look what should be built from the beginning of the design on a white sheet of paper... like every new system our main goal was [that] it should be very reliable, very stable from the first day. So we put a very high effort into a long testing phase...."
Spectrum was in the position to be able to reuse a lot of components from parent IG Group, but regulatory reporting, pre- and post-trade transparency requirements had to be built "entirely new". As Lehl notes: "The main thing in our design was really that from the first day, we had 24-hours (trading) in mind. If you have an old system [which many of Europe's exchanges do], which has some batch-driven components, which has flows where one action follows another, you can tune it; you can optimise things but you reach a point where you cannot use it further, you will not easily come to even near the 24-hour (availability mark). So we designed from the beginning to have all these things happening in parallel -- so that there is no reason to for example have some hours break to reload the data, to backup the data, to assure sync between data centers and so on."
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The exchange's main components can be deployed in multiple instances to scale in both members and instruments traded, the two emphasise, noting that it has multiple gateways where the load can be spilt and capacity can be adapted to member requirements. e.g. a market maker needs more gateways than a broker to be able to constantly provide liquidity in a large number of instruments. This build included ensuring it was set up to ensure multiple instances of the matching engine could scale the overall capacity for order management, matching and price distribution with the number of instruments. The exchange's IT operations team runs constant proactive monitoring to detect bottlenecks before they endanger production including a continuous improvement process where they analyse incidents with measures and lessons learnt. (They also run regular failover tests of the production parts during weekends.)
(For what it's worth, Spectrum Markets uses Oracle to store information on orders, trades and system parameters, with a range of other specialised databases to run live monitoring and alerts on the trading patterns and events, logging or cloud based storage.)
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The team proudly boasts 100% rolling uptime over the last 12 months: i.e. no unavailability in trading caused by technical issues measured according to its 24/5 trading plus 30 min before start of the trading week to assure members can connect and inquire the status of orders/instruments before trading starts. In a market characterised by a growing number of high-profile outages, the pride is understandable.
What are traders (who hit the two million trade mark on the exchange earlier this year) primarily trading? Mostly indices like the DAX, CEO Maan says, "but you go through phases in markets". Spectrum Markets lets users trademarkets including key currency pairs, global indices and commodities. A look at May 2021's data shows 63.8 million securitised derivatives were traded on Spectrum, with 35.5% of individual trades taking place outside of traditional hours (i.e. between 17:30 and 9:00 CET).
Some 85.7% of this activity was on indices, 8.9% on currency pairs and 5.4% on commodities, with the top three traded underlying markets being OMX 30 (32.5%), DAX (20%) and S&P 500 (12.5%).
As Maan puts it: "You have a an increasingly wider group of people in Europe who are well educated, have access to financial markets news, and want to take part in financial markets, because they can less rely on that old fashioned model of putting some money in the bank. And they want to do that around the clock."