Exchange group NYSE Euronext expects its new Pack Epsilon fee package to increase high-frequency trading on its European platforms to between 20% and 25% of its total business, Cees Vermaas, executive director of sales and relationships, Europe, at NYSE Euronext, told theTRADEnews.com. High-frequency trading currently accounts for between 5% and 10% of the group’s European trading volume.
There are also indications that the growth could exceed these expectations. “It could be even more, especially because we see a lot of interest from US firms that want to come over to Europe and play this game,” said Vermaas, adding, “We expect to benefit from the fact that our parent company, NYSE, is very used to dealing with these kinds of clients.”
The new fee package, which Euronext says could cut high-frequency trading fees by up to 30%, is the final step in making the market more attractive for this type of trading, following a series of speed and capacity upgrades. The company has been investing in technology for the past three years, and by the end of 2007 had reduced trading latency to below 10 milliseconds. “We now have all the elements to cater for high-frequency trading models that are sensitive to price, speed and liquidity,” said Vermaas.
The exchange is looking to attract high-frequency traders who are trading on their own account, including hedge funds, derivatives houses and the proprietary trading desks of investment banks. “We would like to facilitate that type of trading more because we think we are missing an opportunity if we don’t look at this specific demand from the market,” said Vermaas. “We would like to get close to these new kinds of clients to develop more strategies in this field in the near future. That is a very important aspect of this Epsilon initiative.”
Alternative trading venues such as Chi-X have had success in attracting high-frequency traders by offering low-latency trading systems and pricing structures that pay rebates to traders posting liquidity on their platforms. Vermaas denied that Euronext has introduced its new fees in response to competition from these venues. “It is more a result of listening to the demands of the market caused by the state of our environment in general, which is enabled by better technology, more capacity and more parties entering our markets to play this game,” he said.
Vermaas added that Euronext did not feel the need to mimic the pricing strategies of alternative platforms. “We don’t give any rebates for specifically liquidity providers. It’s not necessary because we have a highly liquid order book,” he said.
Euronext is not the only European exchange trying to woo high-frequency traders. At the presentation of London Stock Exchange’s annual results on May 22, CEO Clara Furse outlined a number of initiatives the exchange was taking to facilitate advanced trading techniques. These included reducing the latency of its trading platform, TradElect, to three milliseconds and doubling its capacity to 10,000 continuous messages a second.