new system "bursa trade"

24 Nov 2008: Special Report: Making Bursa more robust

24 Nov 2008: Special Report: Making Bursa more robust
by Kathy Fong
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There is no guarantee that trading glitches won't happen gain on Bursa Malaysia after the new trading system the stock exchange will be adopting comes into effect on Dec 1. But should it recur, CEO Datuk Yusli Mohamed Yusoff says he is confident the local bourse will be able to resolve the problem faster and more efficiently.
"There is no guarantee that we won't have trading glitches because we are dealing with computers, which could fail for any number of reasons," Yusli tells The Edge. "But the more important issue is how quickly we can recover from the system failure."
Bursa certainly learnt a hard lesson in "disaster recovery" when a technical glitch disrupted trading on the exchange for the entire trading day on July 3. The system failure drew strong criticism at a time when selling orders were said to be lining up.
"It wasn't something that ought to have happened. Neither is it something that brokers like but it did happen," says James Lau, Kenanga Investment Bank Bhd's senior director (equities). "But the glitch in July gave Bursa the opportunity to improve and be more prepared for such incidents in the future," he adds.
Lau believes that the technical problem has helped alert Bursa to its weaknesses in IT management in terms of problem diagnosis and recovery.
Indeed, Bursa delayed the launch of its new trading system, Bursa Trade Securities (BTS), after the trading glitch on July 3. The launch was originally scheduled in late July.
"This (the trading glitch) really caused us to take another look at some of the processes in terms of how we can recover from system failures when problems occur. Hence, we decided to postpone the launch while we improve on these areas. And now we feel confident that we are in a position to launch the new trading system and will not see a repeat of what happened in early July," says Yusli.
"In hindsight, the glitch gave us the opportunity to improve some of our processors. As a result, we are more confident in recovering our system within a shorter span of time. Because of what had happened, we are forced to make some changes," he adds.
Bursa appointed new chief information officer Lim Jit Jee following the resignation of Yew Kim Keong after the trading glitch.
"The fact that it had already happened is a huge lesson to be learnt. However, we shouldn't be harping on it. There has been enough criticism; we should just look forward to the new trading system," says Uday Jayaram, Macquarie Capital Securities (M) Sdn Bhd head of equity research.
Uday says the new trading system would put Bursa "on par" with the world's developed stock exchanges in terms of technology.
One key feature of the new trading system is that every trade will be matched instantaneously. BTS enables real-time and continuous matching of orders compared to the 10-second matching under the current 18-year-old SCORE. This makes online trading faster and more responsive.
Besides that, the trading system will help the regulators to curb price manipulation. The system will set the theoretical opening and closing prices.
The pre-opening price process enables real-time calculation of stock prices for first matching at the opening phases. This is useful for investors to gauge market sentiment better, as the pre-opening period is made transparent. "These 'marking of prices' at close had been an issue with the authorities concerned about fair price behaviour under the SCORE system," says Lau.
The current system is not able to prevent traders or syndicates from pushing up prices shortly before the market close. "This has been a nightmare for brokers as they are responsible for supervising the activities of their dealers and remisiers," he adds.
The scenario will be different with BTS. The buying and selling will only be done at a fixed price during the 10 minutes before closing time.
The trading system, which forms the backbone of the stock exchange, will help to enhance the accessibility of the local bourse. It will enable investors around the world to have direct market access (DMA) to Bursa. "After we have DMA, someone from Chicago or Iceland can put in a trade to his or her terminal and go straight to Malaysia. The world is our market then. In the old days, someone had to call one of our brokers [to execute trades]," says Omar Merican, Bursa COO.
DMA is already available on the derivatives exchange. Bursa will only start to offer DMA six months after the new trading system is launched for equity trading. "The delay is to ensure we have a smooth run on the trading system first," says Yusli.
Multi-currency trading platform is another area that Bursa could explore with its new trading system. According to Omar, Bursa should be prepared for multi-currency trading in the first quarter next year. This will pave the way to making Bursa "international".
"In the future, we can have foreign currency products, for example ETF (exchange traded funds), and even yen or euro-denominated securities, being traded on Bursa," says Yusli. But, this will not happen so soon, given the soft sentiment in the global equity markets, he adds.
Bursa has spent some RM100 million on the new trading system for both the derivatives and equity exchanges.
According to Yusli, Bursa had to spend a large sum mainly because the trading system had to be customised. "We have to customise the system so that it could meet our requirements which other developed markets don't have. As a result of the these enhancements, the project became more complicated than it otherwise would have been. This explains why the project took a longer time and is more costly to implement," he says.