Frankfurt modernises floor trading to boost liquidity

The exchange council of the Frankfurt Stock Exchange, the main regulated market of German exchange group Deutsche Börse, has resolved to abolish ‘lead-broker’-based trading in equities and fixed income securities from 28 March 2012.
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The exchange council of the Frankfurt Stock Exchange, the main regulated market of German exchange group Deutsche Börse, has resolved to abolish ‘lead-broker’-based trading in equities and fixed income securities from 28 March 2012. Lead brokers will be replaced by ‘Xetra specialists’, market-makers who will ensure sufficient liquidity in less frequently traded instruments.

From 2012, all trading on the Frankfurt Stock Exchange will be shifted to Xetra, Deutsche Börse’s electronic trading platform, from the current Xontro floor trading system. Frankfurt’s trading hall will remain operational, and will be used by the Xetra specialists.

The move is aimed at improving the Frankfurt Stock Exchange’s competitive position, and in particular opening up the exchange to international investors. The Xontro system only offers connectivity to German members. According to Deutsche Börse, issuer and trading participant requirements for a modern trading venue, increasing international competitive pressure and regulatory developments have called the current trading practices of the Frankfurt Stock Exchange into question.

While existing lead brokers are the most qualified to become Xetra specialists, they will not be granted the status automatically and will need to go through an approval process, according to a Deutsche Börse spokesman.

Like its counterparts in other European countries, Deutsche Börse has faced mounting competition from pan-European multilateral trading facilities (MTF). Chi-X Europe, the largest displayed MTF, had an 18.7% market share of German equities trading by value in February, according to figures by Thomson Reuters.

Deutsche Börse launched its own pan-European trading platform, Xetra International Market, in November last year.

“In adopting this resolution, we ensure that the Frankfurt Stock Exchange can optimally fulfill its economic function as a stock exchange under considerably changed market conditions as well,” said Dr. Lutz Raettig, chairman of the Frankfurt Stock Exchange’s exchange council, in a statement.

The changes will not mean the end for Xontro. Several of Germany’s regional exchanges, including those in Munich and Stuttgart, still use the trading system.

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