Deutsche Börse has reported a positive start to a tariff that charges members who send excessive messages to its trading system, as the German government prepares to decide on new rules for high-frequency traders.
The Deutsche Börse message charge began in March and tailored charges to suit the range of instruments traded on its Xetra trading platform. For DAX stocks, members are charged if the average number of messages to executions exceeds 2,500:1 in a month.
According to the exchange, 25 members paid excessive system usage fees over €100 in March, declining to 18 by the end of July. In the same period, the amount charged by the exchange declined from €100,000 to around €50,000 in July.
While the ratio appears to be aimed at high-frequency trading (HFT) firms whose strategies typically include a high proportion of cancelled trades compared to actual executions, the exchange insists this is not the case. The proportion of HFT on Xetra is thought to be around 40%.
“We are aiming to discourage poorly programmed applications as well as clients who access Xetra using a member’s infrastructure with the goal of placing orders that will never be executed,” Michael Krogmann, executive vice president, head of institutional equity, Deutsche Börse, told theTRADEnews.com. “The charge was not only designed to prevent overloading of our exchange trading system, but also to cover the higher network and market data cost in our members applications and on our end caused by massive quoting.”
The bourse also claimed it was aware of a potential ploy by some firms to route strategies with high order-to-trade ratios through members that have low ratios. Many brokers that serve institutional investors claim to have a ratio of below 5:1.
“It might occur that firms try to circumvent the fees by using others members with lower average ratios, but the most active members on our platform, i.e. those that trade with low latency, have order-to-trade ratios of below 50,” said Krogmann. “Our ratio of 2,500:1 for DAX stocks is not high. We believe the charges we have imposed have been positive for our market quality, but we can also re-calibrate the parameters if necessary.”
Markets that offer trading in German stocks could be compelled to enforce order-to-trade ratios, as well as minimum tick sizes, under a new German HFT law that is being discussed by the country’s cabinet today.
The act would amend the Securities Trading Act, the German Banking Act and the Exchange Act and would also require HFT firms to be licenced and subject to minimum capital requirements.
The rules could come into force by next year and would be supplemented by any HFT curbs that are included in MiFID II, which is due for implementation in 2014 at the earliest.