Click to edit Master title style Ade Bajomo Executive Director | Market Operations and Technology Division for The 4 th Annual Building African Financial.

Click to edit Master title style

Ade BajomoExecutive Director | Market Operations and Technology Division

forThe 4th Annual Building African Financial Markets Capacity Conference

September 18th 2015

Technology: Propelling Exchanges in Developing MarketsA Case Study of the NSE

Click to edit Master title style|Outline

1 • What We Do Now Matters

2 • Technology – A Capital Market Enabler

2 • Industry Trends - The Race to Zero

3 • Emerging from the Frontiers

4 • Enabling Trading Technologies

5 • Exchange’s Technology Overview and Architecture

6 • Technology as an Enabler for Inclusive Growth

7 • The NSE Example

8 • NSE Supporting African Capital Markets

9 • Q & A

2

Click to edit Master title style|Brief Overview of The NSE

2nd*Largest Exchange in Africa

by Market Cap At N15.8 tn ($79.5 bn)**

219 Active Dealing

Members**

184 Listed

Companies**

190 Equities (N10.2 tn)60 Bonds (N5.6 tn)

4 ETFs (N4 bn)**

Local 47.1%Foreign 52.9%Total Market

Activity Jan - Jun ’15

Company Highlights:• Today, NSE services the largest economy in

Africa, and is championing the development of Africa’s financial markets.

• The NSE offers listing and trading services, licensing services, in addition to market data solutions, ancillary technology services, and more.

• The Exchange offers a robust and internationally recognized regulatory environment that bolsters trust and investor confidence.

• The NSE is a full member of the World Federation of Exchanges (WFE) with meaningful participation in other global and regional organizations, some of which set global standards.

*Excludes dual listing not on the primary market**As at 31st August 2015

3

Click to edit Master title style| GDP Per Capita (in USD at constant prices since 2000)

The difference 30 years make in comparative numbersNigeria’s GDP Per Capita outperformed China barely thirty years ago (88th in the world), yet China is now miles ahead, having successfully untapped its opportunities (2nd in the world

vs Nigeria’s 114th Position before rebasing (now 26th)

4

What We Do Now Matters

Country 1970 2012 %ChangeChina 122.29 2634.71 2054%Ghana 294 402.7 37%Kenya 291.49 478.22 64%South Africa 3104.02 3825.09 23%Nigeria 222.18 1452.09 554%

Source: Trading Economics

Population Growth

Country 1970 2012 %Change

China 818 1330 63%

Ghana 8.7 25 187%

Kenya 11.3 42 272%

South Africa 22.5 48.8 117%

Nigeria 57.4 166 189%

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We are faced with a series of great opportuniti es

brilliantly disguised as impossible situations.

5

Click to edit Master title style|Moving with the times

• The Securities industry is largely driven by technology, whereby the ability to develop a focused strategy for the utilization and deployment of resources is critical.

• Support for new technology driven trading approaches is key

• Utilization of data (including those from the Social Medium) to develop automated trading strategies and enhanced risk management is now mainstream

• Trading venues, regulators and regulated entities need to keep abreast of the trends to make markets more transparent and fairer for investors and participants

• Speed, accessibility and robustness of technology systems are now critical success factors of modern trading venues, underpinning the achievement of scale economics

• Key Industry trends include, but are not limited to the following:

–Mobile / E-trading–Co-hosting and Co-Location–New technology enabled trading models

–Reduction in latency and increases in order book capacity

–Market surveillance technology

Technology: An Essential Capital Market Enabler|

19th Century iPad

20th Century Trading

20th Century Tech Evolution

NeXt Generation Trading

Click to edit Master title style|Reducing the time of execution• Low latency allows for unnoticeable delays between an input being processed and the corresponding

output providing real time characteristics

Key Trending in Latency reduction• Over the past 5 years, most execution venues have placed substantial investment into creating trading

infrastructures and platforms that reduce latency, support high volume flow, and disseminate market data.

Key theme to consider: Speed and Connectivity• How does your speed of access and level of connectivity compare to your main competitors?• Do you understand the commercial implications of not updating legacy IT systems?

2007 2008 2009 2010 20110

100

200

300

400350

100

5 0.9 0.01

Late

ncy

MS

LATENCY DEVELOPMENT, 2000 to 2011Year Latency2000 10s2007 350 ms2008 100 ms2009 5 ms2010 <900 us2011 <100 us

*Source: KPMG - Winning platforms, 2012

Industry Trends: The Need for Speed|

Click to edit Master title style|KEY DEVELOPMENTS ORDER BOOK CAPACITY

• Requirements to act on changes in the market near real-time has led to the Race to Zero

• Market participants look to optimize the time required to access market data and initiate and execute a trade

• As network providers continue to reduce latency and increase availability, many exchanges have – in turn – optimized their order/trade and market data protocols

• This has also led to the evolution of exchanges towards the offering of trading-related IT services that facilitate automated trading and an increased focus on facilitating trading by for example allowing market participants to host physical servers in the same data center as the trading/ matching engines

• Accordingly, several exchanges have undergone substantial technology upgrades in order to increase their order book capacity measured by Orders Per Minute (OPMs) as shown in the graph to the right

JSE

Bombay SE

ASX Trade

Hong Kong EX

Nasdaq OMX

Tokyo SE

LSE

NYSE Euronext (US Options)

0 500,000 1,000,000 1,500,000

30,000

30,000

100,000

120,000

250,000

410,000

500,000

1,000,000

200

1,000

20,000

15,000

30,000

3,000

18,000

38,000

Before Upgrade

After Upgrade

Orders Per Minute (OPM) *Source: KPMG - Winning platforms, 2012

NigeriaBefore: ~1,000After Upgrade: >50000

Industry Trends: A Race to Zero |

Click to edit Master title style|Emerging from the Frontiers – Technology an Enabler

CRITERIA FRONTIER MARKET

NSE'S CURRENT POSITION

(as of Q1 2015)

EMERGING MARKET

Openness to Foreign Ownership At least some Significant Significant

Ease of Capital Inflow/Outflow At least partial Significant Significant

Efficiency of the Operational Framework Modest Modest Good & Tested

Stability of Institutional Framework Modest Modest Modest

No. of Cos. with Full Market Cap 2 / $516M 11 / $1,032M 3 / $1,032M

No. of Cos. with Float Market Cap 2 / $37M 13 / $516M* 3 / $516M

No. of Cos. with Security Liquidity 2 / 2.5% ATVR 13 / >2.5% ATVR* 3 / 15% ATVR

Repatriation of Capital and Income Modest Significant Significant

Foreign Ownership Restrictions Modest Low Low

Broker Competition To Ensure High Quality Services Low Low Modest

• Exchanges classified as Emerging under MSCI classification attract more liquidity and direct foreign investments

• These exchanges have immense impact on their economy and wealth creation in their countries

• MSCI Frontier Index Mkt Cap: USD82 Bn

• MSCI Emerging Mkt Index Mkt Cap: USD 3.4 Trn

9The Nigerian Stock ExchangeMay 2015*As of 2013

Click to edit Master title style|Where we all want to be Swimming

Frontier Market

Emerging Market

Developed Market

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The trading technology framework impacts the liquidity and depth of the market, access to the market; and, market surveillance and transparency.Trading technologies impact the broker

community (local and international) affecting their costs, ease of access and operational strategies

volumes. Technology also affects the way investors access the market and manage their portfolios.

A critical pre-requisite for frontier marketemergence isenabling technology, facilitating operational efficiency within the markets and their eco-systems.

Enabling Trading Technologies

Enabling Technologies• Trading Platform• Market Database• Networks• FIX Protocol• Order Management System• Business Continuity• End to End Process Automation• Monitoring & Capacity Planning

11

Click to edit Master title style|Trading Technology Considerations

• A high performance multi-product, multi-asset platform is an essential building block

• Highly scalable to cater for wider participation of growing middle-class and investing segment of the population

• Supports global investor participation and offers features such as direct market access and automated trading

• Architecture must support low latency and maximum system availability for users

• The trading engine, in addition to order matching, should also carry out functions such as index computation and position keeping

Trading Platform Market Database Networks FIX Protocol

• Historical data is stored in high performance databases, separate from the core trading engine

• A ‘lean and mean’ trading

engine can be maintained

• Market database essential for the provision of BI services and data products

• Helps add value to the investment decision making process of market participants

• Revenue

• Market data can provide an alternative source of revenue for an exchange

• Emerging frontier markets need to develop low latency, reliable, secure and scalable data networks that will cater for the on-going evolution of trading

• Networks must be well designed and optimized, with the ability to carry data at the highest speeds to support the high volumes of buy and sell orders generated by the trading engine

• The Financial Information Exchange (FIX) protocol has seen widespread adoption by the global capital market participants

• Fix Adapted for Streaming (FAST) is also an essential baseline requirements for today’s trading platforms

• FIX and FAST utilized by market data vendors and order management system providers to interface with trading engines

• Trading platform should also be upgradeable to run the Itch and Ouch protocols (where higher performance levels are required by the market)

12

Click to edit Master title style|Trading Technology Considerations (Cont’d)

Order Management System

Process Automation Monitoring and Capacity Planning

Business Continuity

• Automated interfaces between trading platforms and order management systems is a key requirement for a market to move from the frontier to emerging classification

• The implementation of a minimum technology standard for the broker dealer community will be an enabler for technology driven efficiency in these markets

• It will also engrain best practices in achieving improved levels of transparency and reduced order placement to execution times

• Process automation is key to ensuring that the investments in technology and innovation are translated into a high quality service for market participants

• A continuous improvement process is also required to update operating efficiency and add true value to the experience of market participants

• Trading infrastructure and applications need to be monitored in real time to ensure and maintain high availability of systems

• Diagnostic and capacity

management tools provide an early warning system in the event of impending or actual problems

• Prompt alerting is key in mobilizing resources quickly to resolve problems as they arise

• Tools must also provide the ability to drill down, and present arising alerts from a range of applications, hardware and networking systems via a single administrative interface

• A robust business continuity plan is essential - it will ensure timely and dependable recovery of services in the event of a disaster

• The plan must ensure an adequate level of geographical dispersion from the main site, and also support smooth recovery to the backup systems in the shortest practical period of time

• Business continuity processes should be regularly tested by the Exchange and its wider eco-system of broker-dealers and key market participants

13

Click to edit Master title style|Exchange Technology Overview

Market Data Feed

CSD Surveillance Market Database

Secure WAN

Traders/Market Makers

Trader Workstation

MM/Broker OMS

Post Trade Management

Secure WAN

VPN

Trading Engine

FIX

FIX

FIX

SDK

New investor access channels

Market Displays

Website/Portals

Administrator Workstations

Secure WAN

Secure WAN

14

Click to edit Master title style|Exchange Technology Architecture

TECHNOLOGY

FINANCE AUDITOPERATIONS BUSINESS DEVELOPMENT

MI/DATA WAREHOUSE

MARKET SERVICES

LEGAL & REGULATION

CLEARING AND SETTLEMENT

HR HOSTING ADMIN

BUSINESS AND SUPPORT SERVICES

DOCUMENT MANAGEMENTANALYTICS &BIG DATA

WORKFLOW AUTOMATIONBUSINESS PROCESSES

WORKFLOW AUTOMATION/BUSINESS PROCESSES/ANALYTICS/DOCUMENT MANAGEMENT/COLLABORATION

ENCR

YPTI

ON

SECU

RITY

SER

VICE

S

IDEN

TITY

MAN

AGEM

ENT

AUTH

ENTI

CATI

ON

FIRE

WAL

L

NET

WO

RK L

ATEN

CY M

ON

ITO

RIN

G

MAN

AGEM

ENT

SERV

ICES

APPS

M

ANAG

EMEN

TM

ON

ITO

RIN

GH

ARD

WAR

E M

ANAG

EMEN

TCA

PACI

TY

MAN

AGEM

ENT

ALGORITHMIC TRADING

MARKET DATAFIXDATA WAREHOUSE

SURVEILLANCE

MATCHING ENGINE

RISK MANAGEMENT

INTERFACES DATA PORTAL

CORE TRADING APPLICATION SERVICES

HIGH PERFORMACNE CABLING

STORAGE & PRINT SERVICESSERVERSNETWORK SERVICES

VIDEO AND VOICE SERVICES

ULTRA LOW LATENCY SERVICES

OPERATING SYSTEMSGATEWAY SERVICES

DESKTOPS/HANDHELDS

CORE INFRASTRUCTURE SERVICES

MU

LTI-CAH

NN

EL SERVICE ACCESS

PDA/TABLETTELEPH

ON

ELAPTO

PFAX

MO

BILEPC/BRO

WSER

Hardw

are Agnostic

15

| FIX Life Cycle|

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17

Integrating Africa’s Exchanges

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Customer Driven Electronic Trading• Buyers and sellers of securities are provided with electronic access to

trade in the market by their broker dealers via tools that are easily accessible and appropriate to support the customer business. Institutional investors are provided with terminals that link up to the broker dealer order management system while retail investors are provided with access to trade via the internet using a smartphone, tablet device or a traditional computerDirect Market Access

• This refers to granting institutional investors (known as the buy side) and other traders wishing to trade in securities access to do so directly from the information technology system of their broker-dealer firms to the Exchange’s order book, rather than the normal trading method of the buy-side companies passing their orders to the broker-dealer firms ‘ trading desk for execution. The technique is often combined with HFT

Algorithmic Trading• Algorithmic trading, also called automated trading, black-box trading, or

algo trading, is the use of electronic platforms for entering trading orders with an algorithm which executes pre-programmed trading instructions whose variables may include timing, price, or quantity of the order, or in many cases initiating the order without human intervention

High Frequency Trading• High-frequency trading (HFT) is the use of sophisticated technological

tools and computer algorithms to rapidly trade securities (a form of Algo trading). HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. By 2009, HFT accounted for 61% of the US trading market share, but has since reduced to 51% in 2012

Trading Model Options – New Age Technologies

Click to edit Master title style|An Opportunity for Inclusive Growth

Indonesia Botswana South Africa Mexico Ghana Brazil Nigeria0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.52

0.320.30 0.30

0.25

0.15

0.05

% Point Reduction in Poverty for every % of GDP growth, 1999–2010• China and India’s poverty headcount ratios declined 78.3% and 33.81%

respectively from 37.4% and 49.4% in 1996, to 9.2% and 32.7% in 2010, compared to a 9.75% decline to 62% for Nigeria in the same period.

• Other rapidly growing countries have successfully converted economic gains into lower poverty rates, Africa has a significant opportunity to do same.

May 2015 The Nigerian Stock Exchange 19Source: McKinsey Global Institute (MGI)

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May 2015

Financial Inclusion

The Nigerian Stock Exchange 20

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Enabling Technologies

Trading Platform

Market Database

Low Latency Networks

FIX ProtocolOrder

Management System

Business Continuity

End to End Process

Automation

Monitoring and Capacity

Planning

What we offer

Putting it all Together

Click to edit Master title style|NSE Supporting African Capital Markets

The NSE can Provide...

Scalable Infrastructure X-gen utilizes leading

technologies such as IBM, Cisco, EMC to support and run the trading platform

Price Transparency Trading in Multi asset / Multi

product Unparalleled mobile/ e-

trading capabilities

Sponsored Access• Direct Market Access

capability to support Buy-Side firms trading through to the Exchange

Data Centre Scalable low latency

infrastructure, underpinned by a world class DC

Global connectivity using our ISP

System Support Strong global experienced

workforce trained by NASDAQ with previous Nasdaq implementation experience

Test Strategy A comprehensive test strategy

offering covering 99.9% of your requirements (test plans, test cases, test cycles can be leveraged)

Market Data Offering Global access to MDV’s

(Reuters, Bloomberg) Access to data via FIX 5.0

protocol

Total Cost Offering This will be considerably

cheaper as you will be leveraging our existing infrastructure, support systems and expertise

1st Class Trading Platform Our customized Nasdaq OMX

system provides the NSE with a 1st class trading platform used globally.

22

Click to edit Master title style| The X- Gen Co-Hosting Opportunity

• One of the fastest matching engines in the world – capable of handling over 40,000 order matches per second

• Low latency trading < 100 nanoseconds• Can handle over 10,000 securities and

million of trades per day

• One of the fastest matching engines in the world – capable of handling over 40,000 order matches per second

• Low latency trading < 100 nanoseconds• Can handle over 10,000 securities and

million of trades per day

Performance ImprovementsPerformance Improvements

• Supports several asset trading types including-

• Supports Market Makers, Liquidity Providers• Supporting reporting, surveillance tools

• Supports several asset trading types including-

• Supports Market Makers, Liquidity Providers• Supporting reporting, surveillance tools

New Business Possibilities/CapabilitiesNew Business Possibilities/Capabilities

• Supports FIX and SDK toolkits • Sponsored access• High Frequency Trading• Easier Market Data Disemination interface

via FIX• Developed with supporting datawarehouse

• Supports FIX and SDK toolkits • Sponsored access• High Frequency Trading• Easier Market Data Disemination interface

via FIX• Developed with supporting datawarehouse

New Operational ParadigmsNew Operational Paradigms

• Build on world class data centre infrastructure and network providing lower operational costs

• Superb management tools for easier market control, maintenance

• High scalability, High availability design

• Build on world class data centre infrastructure and network providing lower operational costs

• Superb management tools for easier market control, maintenance

• High scalability, High availability design

Reduced Total Cost of OwnershipReduced Total Cost of Ownership

• Commodity• Future• Option• Strategy

• Equity• Debt• ETFs• FX

What X-Gen can deliver to you:

Click to edit Master title style|The NSE’s X-Suites

A secure on-line portal for Issuers to submit financial and other information to the NSE and the market in an efficient manner, bridging any disclosure gaps between listed companies and the capital market.

A program that empowers whistleblowers to report possible violations of Exchange rules, the securities law and fraud related to activity within the market.

BrokerTrax provides a transparent view into Dealing member firms found liable for breach of market rules.

X-Compliance provides compliance related information on all listed companies, including

Compliance BrokerTraX

Value added services from the NSE in support of listed companies and investors. They include: Corporate Access; Investor Relations; Institutional Services; Corporate Governance and Independent Equity Research.

A user-friendly website that runs smoothly on mobile platforms, and allows the Exchange to scale up its web services in line with user demand.

24

Click to edit Master title style|NSE’s Transformative Technology Overview

2011

2013

2014 2015

Beginning of the

“X-era”, with new management team

focused on technological

transformative agenda. 2012

World-class Trading Technologies

NSE launches several

transformation initiatives such as X-

Compliance, X-Qual, Broker-TraX,

etc.

Launch of X-Gen, dubbed as the fastest

trading engine in Africa; First-ever

issuer reporting portal in Nigeria, X-Issuer is

introduced.

Rollout of X-Web and X-Whistle, and the NASD

trading system is hosted on the NSE’s X-Gen

platform.

NSE continues its agenda to provide

“Best-in-Class” technology with

Smart Trading tools and enhanced Market

Surveillance capabilities.

25

Click to edit Master title style| Improved market liquidity and depth

Modern, low- latency, high performance trading platform

Fast Remote Trading Capabilities

Wider Access to “Real Time” Data

Mass Population and International Reach

Unparalleled Automation and Connectivity

Support for latest securities trading paradigms

Improved market transparency and governance

Adherence to standards

Best in class regulatiom

Changing The Customer Experience |

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But it’s not just trading technology.

Tech connects all the dots in our business.

27

Click to edit Master title style|Take Home

African Stock Exchanges must be savvy in the identification, implementation and exploitation

of appropriate trading technologies as an enabler for the integration of African Capital Markets and the move into the emerging, or

even, developed market classification.

Technology must be underpinned with robust business processes to help achieve improved participation and liquidity for their markets, and also offer a basis to grow the markets through increased listing

activities and diversified product offerings.

This will encourage mass market participation, thereby supporting financial inclusion -the foundation for sustainable wealth, inclusive

economic growth and national development.28

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THANK YOUQuestions & Answers