German exchanges restructure for algo trading

German exchanges restructure for algo trading

Swiss-German derivatives exchange Eurex is to introduce price discounts and upgrade its technology infrastructure to cater for an increase in proprietary and algorithmic trading techniques.

The new pricing programme will be introduced on 1 February 2007 and will include volume discounts for exchange-based transactions in key Eurex product groups.

The steeped discounts offered will amount to 10, 20 or 30 percent, depending on volumes. Dealers trading more than 2.4 million Bund futures contracts will realise a fee reduction from EUR 0.20 to EUR 0.14 per contract.

Eurex will also be reducing the prices for Swiss and US equity options to EUR 0.20 and CHF 0.30 respectively, bringing them into line with the prices that currently apply to most European equity options. With respect to capital market products, all futures and options will also be harmonized at the lowest price level of EUR 0.20 or CHF 0.30 – the price that already applies to derivatives based on German government bonds.

Had the new pricing structure applied in the first nine months of 2006, sales revenues from trading and clearing at the Exchange would have been reduced by around EUR25 - EUR30 million.

Side-by-side with the pricing incentives, Eurex has also drawn up a 'technology roadmap' promising higher data throughput rates and faster system response times from software component optimisation and hardware upgrades. Once the measures have been implemented in full, says Eurex, the platform will offer substantially faster response times and will be able to process a transaction volume of more than one billion quotes a day.

Additionally, with effect from 18 December 2006, Eurex will provide clients with all order book updates and, as a result, the entire price chain in real time and on an unnetted basis for the first time. In the course of 2007, Eurex clients will also be able to configure the delivery of the order book data they wish to receive themselves.

Eurex parent Deutsche Börse has also been upgrading its trading platform, offering participants four times the previous network bandwidth since the beginning of December. The current upgrade has boosted the bandwidth from 128 KBit/s to 512 KBit/s. The new network infrastructure also benefits participants on the Irish Stock Exchange, which uses the Börse's Xetra for trading.

Deutsche Börse says the move has cut round trip times from order execution to confirmation by 50%, with the fastest time down to as little as 25 milliseconds. A new release of the platform in spring 2007 is expected to improve data transfer rates and capacity still further.

The German exchange says the upgrade positions the market for the considerable increase in transaction volumes expected to result from the growth of algorithmic trading in particular. The proportion of automatically generated quotes and orders is already displaying double-digit growth, says the Börse, and currently accounts for approximately 37% of total Xetra trading volume.

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