The London Stock Exchange (LSE) and other leading European exchange groups have revealed to regulators the amount of high-frequency trading activity executed across their trading platforms.
The figures were released in the exchanges’ submissions to a call for evidence by the Commission of European Securities Regulators (CESR) on the micro-structural issues facing Europe’s equity markets which, along with high-frequency trading, probed market participants’ views on sponsored access, co-location, indications of interest and trading venue pricing tariffs. The call for evidence concluded earlier this month and responses will be fed into the European Commission’s review of MiFID. CESR is responsible for ensuring supervisory convergence between securities regulators in Europe.
The LSE reported that 33% of trades by volume, or 32% of value traded, on its cash equities (including its International Order Book) and structured products platforms in Q1 2010 were high-frequency transactions, according to widely accepted definitions of the term. Furthermore, the LSE said that 9% of its entire value traded in the same period resulted from high-frequency players trading against each other.
For Turquoise, the pan-European multilateral trading facility the LSE bought at the start of the year, high-frequency trading accounted for 19% of trading volume in Q1 2010, down from 23% in Q4 2009. According to internal estimates, 20% of equity value traded on Borsa Italiana, the Italian exchange business owned by the LSE Group, is high-frequency flow.
By comparison, NYSE Euronext, which operates cash equities markets in Lisbon, Paris, Amsterdam and Brussels, estimated that 23% of total transaction value during the first quarter of 2010 was executed on a high-frequency basis, up from 5% in 2007.
Nasdaq OMX, which operates the Nordic markets in Copenhagen, Stockholm, and Helsinki, said 13% of its trading value at present is high frequency, based on analysis of algorithmic flow. Bolsas y Mercados Españoles, the Spanish domestic exchange, said it broadly considered high-frequency trading to account for between 25-30% of cash equities trading.
Consultancy group Aite estimated in March that high-frequency trading was responsible for around 25% of European cash equites trading flow and predicted the figure would rise to 45% by 2012.
Despite not offering maker-taker pricing – generally seen as favourable to high-frequency trading strategies – during Q1 2010, the proportion of such activity conducted on the LSE is comparable with Chi-X Europe, which reported that 40% of cash equities trading on its displayed order book is high frequency. Chi-X’s maker-taker pricing schedule charges members 0.3 basis points for aggressive executions and rebates 0.2 bps for passive orders.
On 4 May 2010, the LSE introduced new pricing schemes designed to reduce fees for high-volume traders in UK stocks. The first new fee schedule makes trading free for firms providing a large amount of liquidity in the UK’s most liquid stocks, while the second charges firms that trade more than £3.5 billion per month just 0.29 bps for aggressive orders. The tariffs run in parallel with the LSE’s existing price schedule.
The tariff changes were the second attempt by the LSE to cater to high-frequency trading in recent years. Ex-LSE CEO Clara Furse introduced fees for aggressive executions in large-cap stocks and rebates for passive executions in September 2008. The scheme was scrapped by Furse’s replacement, Xavier Rolet, five months after he took the reins in May 2009.
“High-frequency traders provide liquidity and efficiency to a market where trading takes place on multiple venues, i.e. a fragmented MiFID environment,” wrote Anita Collett, senior manager, regulatory strategy, LSE and author of the exchange’s submission to CESR. “In general, we believe that there are sufficient net benefits of high-frequency trading that any regulatory intervention must only be undertaken if there is evidence that they present a concern, rather than mere assertion.”