High-frequency trading – a discussion of relevant issues - Xetra

Basis pointsHigh-frequency trading – a discussion of relevant issues May 2013Liquidity varies over time, largely dependent on economic uncertaintyEurex Liquidity Measure (ELM)The ELM measures the round trip market impact cost ofsomebody executing a EUR 10 million market order onexchange.It is a proxy for liquidity. The smaller the price impact,the higher the liquidity.Visible liquidity decreasedLiquidity did not revert back to its high of Q2 2007.252010000000 - Avg. Advanced Price Movementin BPAt times of crisis, the market impact cost increases, asparticipants scale down their risk profile, resulting inwider spreads and reduced sizes.In general, the liquidity readily available in the orderbook looks slightly worse in Q3 2012 than in 2005.One of the key contributors to this trend is the use ofexecution algo by the buy-side, which has vastlyreduced the placement of resting orders by the buy-sidein the transparent order book.HFT adds significant liquidity, but their order sizes aretypically much smaller.1510501 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 32005 2006 2007 2008 2009 2010 2011 2012Avg. Quarters15