Toronto based Aequitas NEO Exchange, launched this past April, is on a mission to reshape capital markets and bring Canadians’ trust—and their investments—back to the core mission of how exchanges should operate. Namely, to provide a mutually beneficial marketplace in which investors looking to expand their portfolios can pair with companies looking to gain capital. Funding in turn fuels more jobs, more prosperity, and more growth: all great things that keep the cycle running smoothly. But certain practices have disrupted this cycle, especially in the digital age. Chief among these offensive practices, according to NEO President and CEO Jos Schmitt, is predatory high frequency trading.
While high frequency trading depends on information transferred in fractions of a second made possible by advances in networking, the practice of using technology to make money goes back to 18th century enterprising banker Nathan Mayer Rothschild, who used carrier pigeons to make his fortune. Legend has it Rothschild learned the outcome of the Battle of Waterloo before anyone else by having the info sent via carrier pigeon, allowing him to use news of Napoleon’s defeat to snatch up government bonds before other bankers had the chance.
NEO’s President believes that unfair advantages have been skewed in the modern-day carrier pigeon equivalent of high frequency trading. His goal of creating a more transparent, fair market system has already spurred Toronto Stock Exchange—owned by for-profit corporation, TMX Group Inc.—to digitally regulate high frequency trading. Because exchanges thrive off high volume trading, high frequency practices have been allowed to flourish in the past. NEO hopes to curtail unfair practices entirely through greater governance. Rather than being publically owned, the NEO Exchange is run by investors and issuers, including OMERS Capital Market and Barclays Corp. All hold an equal share—thereby eliminating the frenzy to deliver high trade volume value to shareholders.
NEO by the Numbers:
61 million shares (value of $1,103 million) shares traded week of 7/20/15
Average trade size of 336, representing a 1.8% market share (2.7% in traded value)
To fuel these kinds of powerful changes, NEO required a powerful server solution. Prior to launch, they chose to implement Solarflare’s 10 Gigabit Ethernet networking software and hardware—the industry leader in ultra-high performance , ultra-low latency networking—to support its high trading volumes. Along with deploying I/O adapters, the NEO Exchange will implement Solarflare’s advanced Precision Time Stamping software. Nowhere is precise time stamping more critical in accurately recording network activity than in financial markets. Solarflare is the only company offering 10GbE PTP server adapter with a Stratum 3 clock, increasing accuracy from milliseconds to microseconds. Implementing these technologies into NEO’s framework is an essential step in helping its leaders achieve their goal of creating a new kind of national stock exchange that elevates transparency and fairness to the highest levels.