MiFIDII

Reflections On A Technology Migration

By Conny Andersson, Senior Vice President, Platform Integration, and Jan Rondahl, Head of Delivery Management, Market Technology at Nasdaq

In May 2007, the boards of directors of The Nasdaq Stock Market and OMX AB agreed to combine , creating the world’s premier exchange and technology company. The tie-up was finalized in February 2008. Over the next several months, the company was transformed to become leaner and more competitive, enabled in part by a major system migration that ultimately added significant value to the organization.

When the combination was announced, OMX essentially had a monopoly on cash equity trading in the Nordics and Baltics because the exchange business was structured that way across the EU. But OMX’s monopoly position was about to be challenged when MiFID I came into effect in November 2007, and the company identified Nasdaq as a partner that could support in instilling a more competitive, customer-focused culture throughout the organization. Importantly, the combination could maximize the potential of OMX’s well-established Market Technology business. By that time, OMX was a leader in providing solutions to exchanges and clearinghouses around the world.

We made a couple hard decisions directly after the combination. One was to discontinue the development of OMX’s next generation (NextGen) trading system, and migrate from SAXESS to Nasdaq’s much faster INET system. Another decision was to integrate INET with the best of OMX technology capabilities and create Genium INET.

The success of the INET migration project involved a significant amount of collaboration, so everyone on the project team – people from operations, development and infrastructure, the business side and accounts management – was physically moved so they sat together in Stockholm. Nasdaq and OMX had a different way of running projects, but people worked together to solve a common problem. We got to know each other personally, adapted to cultural differences and found ways to do more with less. We reviewed our processes and procedures in both the Nordics and the U.S., and implemented best practices in both geographies, which resulted in a much more agile, process oriented and flexible organization.

The INET implementation in the Nordics was Nasdaq OMX’s first truly global initiative, involving seven exchanges: Iceland, Estonia, Latvia, Lithuania, Denmark, Sweden and Finland. The development was done in London, in the U.S and in the Nordics. Moreover, many adaptations were done to the surrounding system, primarily in the Nordics and Baltics.

Not only was a legacy trading system replaced with a very fast, state-of-the-art system, but the market model was also changed completely. About half of the functionality was removed, and the new market model was more streamlined, simpler to understand and more friendly to new players such as high frequency traders. Migrating around 140 cash equity trading members from SAXESS to a completely different trading environment with INET involved a major market readiness exercise, which was completed prior to launch. Then in September 2008, the decision was taken to implement cash equity CCP in the Nordics as well, and that went live in October 2009, followed by the launch of INET Nordics in February 2010 when the seven exchanges were fully migrated the same day.

We also replaced the NextGen platform, integrating INET with the best of OMX technology capabilities and created Genium INET, which was launched in the Nordics in October 2010 and now is implemented in most Nasdaq markets and several other Tier 1 exchanges around the globe.

The migration from SAXESS to INET along with the CCP launch and the creation of Genium INET was the foundation for a successful and trusting relationship between the two organizations on the technology side. This extremely important achievement upfront gave us the confidence that the combination was positive for both companies in the long term. It showed that the two companies could talk to each other in a similar language when it comes to technology, and we had mutual respect for our knowledge and expertise.

On reflection, we can safely say that strong leadership and speed are critical in a migration and transformation. The end state for what you want to achieve must be defined very early in the process. All our decisions – the definition of the end solution, the systems, interfaces and effect on downstream systems – were taken within about two or three months. We identified some quick wins – projects that could be done in 18 months to two years. Genium INET is a good example of that. Finally, we worked with our clients to ensure a smooth transition.

Nasdaq has done three major market migration projects now: Helsinki, including Tallinn and Riga, Nasdaq OMX and ISE. We’ve climbed a learning curve, and each one has added to our experience.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.