When the JSE was designing its new interest rate market, it chose deliberately to look for a local software company to develop the backbone, rather than go offshore.
Called Yield-X and scheduled to go live at the end of the month, the new market is a platform for trading a broad spectrum of interest rate products, with a focus on derivatives.
South African company Securities & Trading Technology (STT) was chosen to develop the software platform, which provides dealers a front-end to transact both derivatives and cash and which handles the entire process from trade to clearing.
Allan Thomson, the JSE`s director of equities and derivatives trading, says as far as he knows, this is the only market in the world to set up a front-end for both derivatives and cash, since elsewhere the two instruments have to be traded separately.
SA is also unique in that it trades on yield, whereas in other countries people trade on price, which Thomson says is because the local market developed after the invention of the handheld calculator, which allowed for quick yield calculations.
He says the history of Yield-X began in 2001 when the JSE purchased the South African Futures Exchange (Safex). Although Safex`s technology was good, it was old, and so was the Safex product.
Yield-X is one stage in the process to rectify that. "I believe that through this we have gone from being laggards in the world to the leaders," Thomson says.
He says the decision was taken early on not to spend too much of the JSE`s capital on the new venture because of the associated risk. "So we didn`t want to go overseas and pay a lot of dollars or pounds, and also there wasn`t anything suitable anyway because of the fact that we trade on yield.
"So we decided to use someone in SA with experience in the bond market and had a rand cost base, so we turned to the existing supplier of the Safex system - STT."
He adds that going with a South African company not only lowered costs, but also increased flexibility. An overseas option would have done the opposite on both counts.
"The integrated software platform enables complex instruments to be traded and managed simultaneously," he says. "We are pleased to be launching with a world-class trading platform that was developed locally."
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