Instinet has launched smart order routing (SOR) capabilities to the South African markets on the Johannesburg Stock Exchange (JSE) and A2X, aimed at better connecting both local and international investors looking to trade in the region.
The new capability is based off Instinet’s proprietary technology and went live in mid-October. It is initially covering vanilla flow such as direct market access (DMA) and algo trading, with potential plans to move into blocks and more complex flow in the future.
Salvador Rodriguez
Under the set-up, clients will send Instinet an order which the firm will then smart order route to either JSE and A2X.
Speaking to The TRADE about the launch, Instinet’s EMEA head of global execution services, Salvador Rodriguez, said the move is designed to support both local and international investors looking to source better liquidity through greater diversity of venues, as well as build out infrastructure in the market.
“From our perspective as a technology provider, making the local market more efficient for the local participants was a key part of the decision. The feedback we’ve had is that a lot of local participants are crying out for more diversity of venue,” he said.
“But also from our own client base perspective, it gives them the tools that they require to access the different liquidity and price opportunities that may exist through the competition that’s being introduced.”
Read more – JSE SA Trade Connect 2023: Will South Africa follow Europe when it comes to best execution?
Historically, the South African market has been dominated by the JSE as the incumbent venue. Alternative trading platform for listed securities, A2X, launched into the market six years ago as the first real competitor to the JSE and has seen its trade value grow from R657 (almost $35 million) in its first year, to R75 billion (roughly $4 billion) six years later.
The venue’s rapid journey of growth is evidence of demand for greater competition in the venue space within the region. Others have tried and failed in recent years to make waves in this market, namely stock exchange ZAR X, which had its exchange licence suspended in 2021 by the FSCA over liquidity and capital adequacy concerns.
The lack of market fragmentation was a key theme noted by panellists at the JSE SA Trade Connect conference that took place in Cape Town in February, exploring whether or not the region should follow suit with Europe – where there is arguably too much fragmentation – and how institutions could prove best execution without a wider choice of venue.
Rodriguez confirmed more diversity of venue and liquidity would likely boost more international interest in the region.
“A lot of the international global asset managers based in EMEA are more accustomed to smart order routing. They’re accustomed to multiple exchanges and many different order types,” he said.
“Why wouldn’t you have liquidity on another venue and engage with it. It opens up further opportunities with regards to exploring more relationships with other participants – having something that allows you in a quick efficient and automated manner to access those opportunities efficiently is essentially the core of the smart order routing.”