(독일거래소+발표자료)+Krx+conference hft 101004

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(독일거래소+발표자료)+Krx+conference hft 101004

  1. 1. Exchange Perspective on the Rise of High Frequency Trading – Challenges and Responses International Conference on “Trading Environment of Stock Markets – Changes and Challenges” Korea Exchange, 4 October 2010 Matthias Stötzel, Deutsche Börse Group, Legal Affairs
  2. 2. Deutsche Börse Group, 4 October 2010 Overview What is high frequency trading?  Confusion of Terms  What others say about high frequency trading  What is high frequency trading …  … and what is high frequency trading not?  How does high frequency trading work? What is the impact of high frequency trading on capital markets and exchanges?  Benefits of high frequency trading  Risks claimed to be associated with high frequency trading  Impact of high frequency trading on exchange level Regulation of high frequency trading  Measures in connection with high frequency trading on exchange level  High frequency trading in the regulator„s focus 1
  3. 3. Deutsche Börse Group, 4 October 2010 Confusion of terms 2
  4. 4. Deutsche Börse Group, 4 October 2010 What others say about High Frequency Trading Andrew Bowley, head of electronic trading product management for Europe, the Middle East and Africa at Nomura: "High frequency trading is just technology – whoever spends more will be able to get to the market and trade quicker. You can’t legislate against technology and so it‟s not something regulators are getting too excited about.” Lord Myners, UK financial services minister: “The danger is that nobody really seems to think of themselves as owners. It has gone too far. It has now lost its supporting function for the provision of capital to business and has become a game to be played”. Ronald Kent, NYSE Euronext’s head of international listings for Europe, the Middle East, Africa and Asia: “High frequency traders and algo traders serve an important function of the market. It is important that we engage with, and reach out to, these customers and ensure they are being well served by our markets. There is a lot of myth and a lack of understanding surrounding high-frequency traders – in much the same way that hedge funds were not well understood 10 years ago.” 3
  5. 5. Deutsche Börse Group, 4 October 2010 What is High Frequency Trading …  Trading practise more frequently interacting with the market. Speed as competitive  Often carrying arbitrage down to miniscule differences between edge prices traded on different venues and at different points of time, at speeds much faster than the movement of an eyelid.  Use of computer programmes with the computer algorithm deciding on aspects of the order such as the timing, price or quantity of the Automation of order. trading decisions  Computers make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe.  Natural evolution of technological development. Development of technology and  Embedded in the automation of the trading value chain. trading environment  Handling of explosion in trading data available electronically. 4
  6. 6. Deutsche Börse Group, 4 October 2010 … and what is High Frequency Trading not?  A trading strategy in itself - although high frequency traders typically pursue a certain trading strategy.  Flash trading: Certain trading members are informed fractions of a second before other trading members about orders and thereby have the opportunity to accept these orders. However, usually high frequency trades are involved in flash trading.  Co-location placing the trading engine of a trading member not only virtually but physically close to the exchange back end resulting in a reduction of data travel time - although co-location is predominantly used by high frequency traders.  Direct electronic access generally referring to customers being given direct access to the market through a registered trading member‟s system/infrastructure (order routing) or customers of a trading member being given direct access to the market without going through the trading member‟s system/infrastructure (sponsored access) - although direct electronic access is typically used by high frequency traders.  Demarcation of High Frequency Trading and Algorithmic Trading: High frequency traders computerize the decision and execution process, whereas the conventional term algorithmic trading encompasses only the automation of order- execution. 5
  7. 7. Deutsche Börse Group, 4 October 2010 How does High Frequency Trading work?  Use of sophisticated systems and algorithms to generate trading profits. Speed all along the value-chain, i.e. from data reception, internal processing, trade decision making and order Technology sending. and speed  Investment into IT systems, capacity and dedicated highly specialised staff with a deep technical understanding of IT infrastructures down to the level of bits and bytes.  Market making: Placing limit sell and buy orders in order to benefit from the bid-ask spread. Examples of  Statistic arbitrage: Arbitrage strategy involving several securities trading making profits of different market prices sufficiently different from strategies those implied in the model to cover transactions cost.  Event arbitrage: Strategy that counts on a specific event to change the price or rate relationship of two or more financial instruments. 6
  8. 8. Deutsche Börse Group, 4 October 2010 Benefits of High Frequency Trading Provision of quotes at a very high speed. As their margin is typically Liquidity ultra-low, high frequency trader need massive volumes to make their provision strategies sufficiently profitable. Narrowing High frequency traders compete for order flow, and thereby have to spreads provide better spreads than the ones they base their quotes on. Fostering competition High frequency trader typically act on several markets, and markets between trading compete for high frequency trader‟s liquidity. venues High frequency trader act on several asset classes and regions of Increasing the world, thus increasing the global market efficiency. Globally global market speaking in combination with other types of order flow, the HFT flow efficiency brings significant value in terms of liquidity into the market. 7
  9. 9. Deutsche Börse Group, 4 October 2010 Risks claimed to be associated with high frequency trading Given the speed of high frequency trading and due to the fully Fat finger errors electronic nature of the equity markets today, a "rogue" algorithm and malfunction entering the market could wreak havoc (if trading venues have no safeguards in place like volatility interruptions). Several manipulative trading practices (such as layering, pinging and Manipulative others) are claimed to be related to high frequency trading. However, trading these trading practices are not new and not inherent to high practises frequency trading, but can also be performed by any market participant without high-speed trading abilities. The claim is made that high frequency traders, by buying when Reinforcement markets go up, and selling when they go down, reinforced market of market volatility (which, however, can be restricted by safeguards like volatility volatility interruptions). 8
  10. 10. Deutsche Börse Group, 4 October 2010 Potential impact of High Frequency Trading on Exchange Level Exchanges and other trading venues compete for high frequency Competition traders liquidity. Overall effect of high frequency trading is increased system load. Exchanges need to process an ever greater number of transactions at an ever greater speed – while maintaining the levels of availability Trading system their customers are used to. Whereas trading times used to be measured in seconds, they have now fallen to milliseconds and are coming down to micro-seconds. Exchanges need to stress their surveillance systems and ensure Trading they can cope with the activity associated with high frequency trading, surveillance whereas taking into account that the broker‟s responsibility is replaced by computer programs. Implementation of measures avoiding impact of malfunction of high frequency trading on the price discovery process such as Price discovery volatility interruptions. Apparently, sufficient measures were not in place during the so-called U.S. flash crash on 6 May 2010, however, are considered by the SEC in answer to the flash crash. 9
  11. 11. Deutsche Börse Group, 4 October 2010 Measures in connection with high frequency trading on exchange level (1)  High frequency trading is a evolution of technological development No specific and not a certain new trading strategy. regulation  At this stage no specific regulation on high frequency trading has been implemented.  No flash trading, i.e. no preliminary information of certain trading Pre-trade members about order situation. transparency  Access to pre-trade information for all trading participants according to the MiFID pre-trade transparency regime.  Xetra has a trade interruption mechanism which kicks in when the potential execution price of an order lies outside the dynamic or static price range around a reference price.  Once a volatility interruption has been initiated, continuous trading is Safeguards for halted and an auction format is triggered. Market participants are price discovery kept informed.  Given the circuit breaker mechanism in place, it would be impossible for an event similar to the May 6 flash crash to occur on Xetra. 10
  12. 12. Deutsche Börse Group, 4 October 2010 Measures in connection with high frequency trading on exchange level (2)  Co-location services predominantly used by high frequency traders are offered on a non-discriminatory basis to all trading participants.  The basic principle of exchange trading remains that all orders are Co-location available equally and simultaneously to all trading participants.  Whether trading participants make use of co-location services is up to them, as is the general decision how trading participants equip themselves, be it through investments in analyst capacities, smart order routing systems, or in sheer speed.  Regular updates of the performance of the Xetra trading system, by now having reached the area of microseconds in terms of Trading system order round-trip times.  At the same time maintaining the availability levels of far more than 99.99 per cent. 11
  13. 13. Deutsche Börse Group, 4 October 2010 High frequency trading in the regulator’s focus MiFID review by the European Commission and the European Parliament  European Commission acknowledges the benefits of high frequency trading, however, voiced fears about the possibility of malfunctioning of low-latency trading programmes.  Depending on the assessment of the risks and benefits of high-frequency trading additional regulatory intervention might be considered.  Swinburne Report (own initiative report addressing “Regulation of Trading in Financial Instruments – dark pools etc”) to be discussed in the European Parliament makes proposal to charge orders generated by high frequency traders with 1 EUR/order. Evaluation of the US flash crash by the SEC  In answer to the flash crash on 6 May 2010, the SEC adopted a circuit breaker programme.  Stocks to which the circuit breaker programme applies would trigger circuit breakers that halt trading when the market is gripped by extraordinary volatility. 12

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