February 28, 2012 11:14 am
D Börse to charge for âstupid algosâ
By Jeremy Grant in London
Deutsche Börse is to issue punitive charges to traders if they send too many orders into the exchange that do not result in deals being done in a bid to clamp down on what it calls âstupid algosâ.
Like other exchanges, the German operator has seen a surge in the number of orders streaming into its trading system amid the spread of high-frequency trading.
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Such trading uses computer algorithms, or âalgosâ, to generate buy or sell orders in reaction to market data and economic statistics, in pursuit of a pre-determined trading strategy or as part of market-making activities.
However, exchanges are worried about the growing proportion of such orders that do not result in a deal being done, and are often cancelled or revised at the last minute as market sentiment changes.
Regulators have highlighted the practice of âquote stuffingâ, involving entering large numbers of orders and/or cancellations to orders to create uncertainty for other traders, or to camouflage their own strategies.
Such orders use up the capacity of an exchangeâs trading system, slowing down trading speeds for high-frequency and other types of ultra-fast traders trying to get deals done as fast as possible.
There are fears that such âstupid algosâ are operated by traders with less robust systems than larger, more established HFT firms. The established players in the market include Getco and Citadel of the US, and Optiver of the Netherlands.
Andreas Heuer, head of the business and market analysis team at the bourseâs Xetra equities market, said the exchange wanted to discourage âcapacity abuseâ by certain unnamed traders.
âThe intent is predominantly to secure the integrity of our system. We want to disincentivise our trading members from using stupid algos which result in only a small number of trades but a high number of order transactions,â he told the Financial Times. âThey [such traders] do not contribute value, they are simply using system capacity.â
He added: âWe want to save this [system] capacity for having the highest speed possible for these guys who really contribute to market quality. We want to have a balanced situation and not have the bad guys harm the good guys.â
A new tariff will be introduced that penalises traders who exceed a certain order-to-trade ratio. An order-to-trade ratio is the ratio of orders sent into an exchange compared with the number of trades that actually get done as a result.
Mary Schapiro, chair of the US Securities and Exchange Commission, said last week that her agency was still considering asking exchanges to adopt a rule that would impose a surcharge on traders who generate high levels of message traffic, because of the costs it imposes on other traders who must receive such data.
The FT last week reported that Borsa Italiana planned to introduce a similar system to discourage traders from sending too many orders into its system.
The London Stock Exchange has operated a similar tariff, which it calls an âorder management surchargeâ since 2005 and revised it in 2010. Euronext, which comprises the Paris, Amsterdam, Brussels and Lisbon markets, has operated one since 2007.
Additional reporting by Telis Demos in New York
. But the fact is there. And I´m not making of myself any kind of megapro. It´s just common sense.
