Turquoise takes on the City

L'Huillier: we want the cheapest total end-to-end cost

Project Turquoise is a next-generation share trading platform set up to compete with traditional Bourses such as the London Stock Exchange (LSE), helped by the EU Markets in Financial Instruments Directive (MiFID).

Turquoise is expected to launch in 2008 and Yann L’Huillier, formerly at the Boston Stock Exchange, started last week as its first chief technology officer. He talked to Computing about the challenges of the job and the central role of technology in the changing industry.

How will Project Turquoise compete with established exchanges such as the LSE?
There are a number of prerequisites. The platform will have to be fast, reliable and cheap to operate. In the past, exchanges used big, expensive systems. Now you can use better IT for less.
In terms of cost to trade, we want a total end-to-end cost that will be the cheapest in the market. We are starting from scratch with no legacy systems, so we can integrate things seamlessly.

Have you made decisions about specific IT systems for Turquoise?
We are a technology firm, but we are not in business to reinvent the wheel, so we are going to find the best-in-class suppliers to assemble the components.
Our main trading engine and front office technology will be provided by Cinnober. And we will use Euro CCP for clearing and settlement of trades.
The third part, that we have not chosen yet, is the surveillance platform used to monitor trading for discrepancies and insider dealing.

MiFID came into force at the start of November with the aim of opening up Europe’s trading markets. How much difference does it make to Turquoise?
MiFID gives us the ability to set up the exchange and compete with all the European markets. We would have set up the project anyway, but MiFID makes it easier because there is a framework. Without it, Turquoise would have taken longer to establish.
Our business will come from a combination of the extra trading generated by MiFID, and from taking market share from other destinations such as the LSE. The point of MiFID is that a market participant has an obligation of best execution on traders, so they will have to check against Turquoise. So if we can succeed in being cheaper, faster and more reliable ­ and our platform offers the best deal ­ then there is an obligation to use it.

One of the most challenging features of trading platforms from a technology perspective is the variations in traffic volumes. How do you deal with peaks in demand?
We are using best practice to establish what our capacity needs to be and we are using the standard ratio ­ that is, you do 80 per cent of your business during 20 per cent of the day.
You need to have a lot of scale in your system ­ you have to make sure you can absorb those peaks of the market.

A technical glitch at the LSE last month interrupted trading and closed auctions. What are the biggest IT dangers for a share exchange, and how are they avoided?
You should never underestimate the need for change management. Outages are most often caused by software releases, so when you are installing applications you have to make sure not only that it is tested, but that the switchover will not have any impact on the customer.
Human error is the second common cause of problems, either an operator taking something down by mistake or somebody with access who should not have it.
We will have an IT security policy approved by the Financial Services Authority to guarantee we have taken all possible steps to prevent such an error.

What is Turquoise’s biggest challenge?
The biggest challenge is to ensure that all the market participants are connected to the platform.
Previously they did not have to have the connectivity ­ it was not a regulatory imperative to have best execution and so people only connected to one market. Now they will connect to three or four, and smart order routers will find the best deal.