The New Zealand Stock Exchange has delayed the rollout of a new Linux-based settlement and clearance system to allow stockbrokers more time to bring their technology up to date.
Martyn Bain, NZX’s head of strategy and IT, says the project isn’t just a change of technology but a fundamental change to the settlement system that will reduce risk for brokers, something he says is important in today’s financial climate.
Bain says the market will look to do a staged rollout of the new system from the end of the year.
“It’s a big change to the industry and to brokers,” he says. “We’ve extended the timeframe as, while we can have our own system ready, external changes have to be considered.”
Bain says brokers will be investing on their own systems from now and into next year to manage the change.
Under the old system and technology, trades were settled three days after they were made and one at a time. That meant each trader faced risk against a lot of other parties. The new system will shift NZX to what is called “central counterparty” mode to reduce counterparty risk: the risk to each party of a contract that the other party will not live up to its contractual obligations.
“Given where we are at now, that’s important,” Bain says.
The way it works is the seller of a security sells to the central counterparty. That counterparty then sells to the buyer simultaneously. If one party defaults, the central counterparty absorbs the loss.
Bain says that is one real benefit of the change, but the ability to transact other products is another benefit. The NZX needs the technology to establish its own carbon exchange, called TZ1, and to trade some derivatives, he says.
The new system will run on high-end Intel hardware from Stratus Technologies, on Red Hat Linux with Oracle databases and BEA WebLogic application servers.
Indian outsourcer Tata Consultancy Services is delivering the new technology.