By Hirander Misra, CEO of GMEX Group and Chairman of GMEX Technologies

Being a financial exchange services provider has rarely been as hard or competitive as it is today. As the business models for exchanges continue to evolve, the technological requirements to run an exchange – be it established or a new entrant – are shifting as well. Modern exchanges need to meet a variety of requirements to service clients, from providing low latency and agile platforms to offering flexibility with regards to language, trading methods, and data models covering a wide variety of asset classes. The days of operating a simple equity exchange, solely in English, with little concern for operational costs, are over, and consequently simply embracing the traditional exchange technology model is no longer the obvious way forward.

Low, deterministic latency

One of the highest profile requirements from many trading partners for exchanges these days is the need for low latency. Yet speed by itself is not sufficient to attract algorithmic traders. In particular, an exchange can have low latency, but what may be even more important is low standard deviation in latency so that algo trading models work consistently and profitably. Such consistency allows effective bid-ask spread decomposition by market makers and reduces issues around make-or-take liquidity pricing. Whether any of us like it or not, algo trading is a crucial aspect of markets these days, which requires providing not just low but also deterministic latency.


In addition, exchanges today need to move beyond the traditional equity-driven data models and embrace the world of cross-asset trading. That means exchanges need to offer flexibility to clients around data models that service different types of asset classes. To that end, servicing multiple asset classes also means that exchanges need to embrace trading from around the globe, by offering a platform that works with multiple languages as well as handling different trading methods – such as Request for Quote (RfQ), auctions and central limit order book matching – in an integrated fashion. Additionally, we are starting to see the centralised model of an exchange challenged by a decentralised approach involving distributed ledger technology. Exchanges therefore need to adapt to using hybrid trading models, combining traditional with new solutions in a way that will both add value today and address the future requirements of tomorrow.

Low running costs

Despite increased requirements of the exchange members, there is an industry expectation to receive this new value with cost effective initial start-up and ongoing costs, which is even more beneficial if they come with no third-party license costs. Practically speaking, this requires exchange technology providers to be able to deliver services on a small hardware footprint while maintaining high throughput, resulting in less server costs and lower data centre expenses in terms of racks, power usage and management fees.

Equally important, exchanges need to be assured that their service operates with software license costs that are transparent and open; all too often hidden costs and extra fees, levied by exchange technology providers, come as a surprise when exchanges want to expand the scope of their offering. Exchanges should also look to understand and embrace the cost efficiencies of a centralised code base with distributed platform deployment, which if offered by a provider, will allow them to benefit from standard changes others make and vice versa.


Modern exchange operations are often associated with agile and efficient processes and technologies that can be scaled quickly. Yet the benefits of such agility go beyond cost — as technology continues to evolve, being flexible with business process operations can deliver greater resiliency to competitive threats now and in the future. With exchanges being increasingly asked to handle different trading and quoting models, agility in responding will become a crucial factor that determines which venues thrive and which falter.


The reality is that the modern exchanges need to offer their customers a lot more than traditional trading platforms can provide. Embracing the new generation of trading solutions can ensure rapid response to evolving needs in ways that offer advantages of both build and buy!

For more articles in this series please see:

Intro: Rewiring today’s exchanges and post trade to forge tomorrow’s market success

Part 3: What’s Next in Post Trade Clearing and Settlement?

Part 4: The Electronic Warehouse Receipts System for the Commodities Markets of Tomorrow