FRANKFURT, Sept 27 (Reuters) - Futures exchange Eurex will impose a speed limit on trading from December that seeks to restore the balance between high-frequency traders and traditional investors, its CEO told Germany’s Boersen-Zeitung.
The imposition of such speed bumps should support liquidity in markets where computer-driven traders have gained the upper hand over players that prefer to place passive orders that are only triggered if an instrument hits a certain price, the paper on Thursday quoted Thomas Book as saying.
“For market liquidity it’s crucial to get as much business as possible into the order book,” he said. “We will ensure that the order book is the place where you can get the best price most quickly.”
An explosion of algorithmic trading has led to a technological arms race, with high-frequency traders seeking to profit from price misalignments that may appear only for a fraction of a second.
That has marginalised market players who want to use derivatives to hedge their positions in underlying instruments, causing liquidity - and with it the efficiency of the futures market - to decline over time.
U.S. stock markets have already introduced such speed bumps, while Eurex proposes its own so-called “latency protection”. This, said Book, would give an advantage to passive market players operating via the order book, where bids and offers are placed in a queue that is ranked by price.
“It’s important to have the competition for speed, but it has to be fair - and that’s how it works with us,” Book told Boersen Zeitung. This was important in the context of growing competition from off-exchange trading platforms.
Latency protection would be offered on fixed-income options from December, Eurex said, and then be widened out to other products in 2019.
Eurex, created 20 years ago out of a merger between the Deutsche Terminboerse and Switzerland’s Soffex, is wholly owned by Deutsche Boerse AG.
The exchange traded a total of 1.7 billion contracts last year, chiefly equity index and fixed income derivatives. That was up 3.2 percent from the year before but down by 20 percent from its peak a decade ago. (Reporting by Douglas Busvine; Editing by Mark Potter)