Conference Magazine - GoingPublic.de - Deutsches Eigenkapitalforum

Capital Markets
“The use of computers and software is simply an
expression of technological progress in our industry”
Interview with Dr. Miroslav Budimir, Head of Business
Development, Deutsche Börse AG
It is now almost impossible to imagine everyday exchange
trading without algorithmic and high-frequency trading. The
highly technological trading world of today results in high
volatility and sudden price drops on the one side, and higher
liquidity and a reduction in the implicit and explicit costs of
trading on the other. Modern trading structures constitute a
new challenge to market participants, as these rapid developments
can often impact upon the performance of a company’s
shares, as well as traders’ activities and their strategic
decisions.
Conference Magazine: High-frequency trading (HFT)
dominates modern media. Dr. Budimir, how would you rate
that statement?
Budimir: High-frequency trading is not a strategy, but a
technology. Typical features of HFT include a large number
of submitted orders, order adjustments and deletions, as
well as very short investment horizons. Likewise, the speed
of trading plays a key role. Having said that, it is not easy to
define the concept of HFT, given that any possible definition
would exclude some of those who are obvious HFTs. For
example, those HFTs who only generate a small number of
orders. At the same time, “traditional” traders could
mistakenly be considered as HFTs, for instance, if they
provide liquidity and therefore frequently adjust the order
limits.
Conference Magazine: Automated trading is a natural
evolution of the trading process. What potential risks are
innate to high-frequency trading?
Budimir: The use of computers and software is simply an
expression of technological progress in our industry. Naturally
there are also risks, which everyone involved needs to
understand and address. For example, trading algorithms
could get out of control and unintentionally send a huge
volume of orders to an exchange within a very short timeframe.
We recently saw this happen in the United States, for
example. Therefore, it is important to have processes and
procedures to protect the market from these events.
Conference Magazine: And Europe is any better off?
Budimir: In Europe, by contrast, there is a variety of protection
mechanisms built into the process chain. For example,
it is common to deploy mechanisms to prevent so-called
Page 26 Deutsches Eigenkapitalforum 2012
Dr. Miroslav Budimir is an expert in
equity market microstructure. He has
performed academic research on the
design of innovative securities
markets, and was granted several
scholar ships and awards, e.g. by the
George Soros Open Society Institute
(New York). Joining Deutsche Börse
Xetra in 2002, Miro is currently
responsible for Institutional Equity
Business Development. His activities
cover client support, Xetra development
and regulatory topics.
Dr. Miroslav Budimir, Head of Business
Development, Deutsche Börse AG
“fat finger errors”. These avert market participants from
inserting clearly false parameters, such as ordering a very
high number of shares which would distort the market.
Also, volatility interruptions are crucial, too, as they prevent
trans actions at prices that exceed a predefined range.
Conference Magazine: What is your take on the development
of new trading models and the impact they have on
markets?
Budimir: In the 1990s, transparent electronic order books
replaced the hitherto predominant floor trading systems on
European exchanges. In the past, only exchange members
had the privilege of participating in floor trading. Things
changed with the launch of Xetra. The new market model
enabled electronic access to trading. On this basis, new
business models evolved, one of them being HFT. HFTs
provide liquidity and thus compress the bid-ask spreads.
As a result, they reduce trading costs for investors. Or HFTs
link fragmented markets by arbitrage activities. Investors
thereby get better prices, even if they do not have access to
all markets.
Conference Magazine: What protection mechanisms are
in place to guarantee fair and orderly trading?
Budimir: We frequently hear the objection that HFTs have
increased volatility. But that is not the case: Over a period of
ten years, the market has not become more volatile. On the