GBV-Kolloquium "IT in Banken und Börsen" - WS 02/03

Transcription

1 Xetra Trading Platform for Europe Kolloquiumstag der Universität Gießen December 6, Deutsche Börse AG Xetra Xetra Facts International network of members Price leadership Successful development of Electronic Securities Trading in Germany with Xetra Xetra the Initiator for the cash market Deutsche Börse s integrated offering The market for Exchange Traded Funds (XTF) Xetra Outsourcing Overview Trading on Xetra Xetra Best 2

2 Xetra Facts - Xetra international network of members Host Access Point Additional Member Sites Norway (1) 396 Xetra Members : 237 Members in Germany 159 Members in other European countries United Kingdom (47) Ireland (4) Sweden (2) Finland (2) 3602 registered traders 40 % of Members from outside Germany Belgium (5) Luxembourg (4) France (16) Portugal (1) Netherlands (20) Germany (234) Switzerland (14) Hungary Austria (24) Italy (7) Hong Kong (1) Spain (8) Greece (4) <Global Network> 3 Xetra Facts - Economies of scale led to price & service leadership Daily transaction and price developments Xetra % 70% Trades/day, in thousands 46% % 2001 Costs per trade Availability 99,98% 99,97% 99,88% 99,99% Xetra Transaction Fees (Trading, Clearing, Settlement) Fee per executed order in EUR Front-end software for Xetra members included (in contrary to LSE and Euronext) Orderbook depth in Xetra included (LSE charges separately - LMIL) Order entry in Xetra included (LSE and Euronext charge separately) No charge of partial executions (in contrast to Euronext) * Euronext: Trading: 0,60 per trade plus 0,34 additional fees per orde r for order entry; clearing Floor: 0,15: Range: 0,5/0,3Bp;Cap: 18,10 per trade; settlement: 0,082 per trade, 80% netting acceptance assumed; ratio partial executions to executed orders: up to x % for ordervolumeof 600 T ** Xetra New: Floor: 0,70/ Range: 0,56bp/ Cap: 21,00; average clearing/settlement fee 0,54 per trade; ratio partial executions to executed orders: up to 5,59 % for order-volume of 600 T *** LSE: order charge 1 p, transaction charge 5 p, exchange charge 8bp (Floor 25 p, Cap 12,5); share of aggressor trades 60% (auctions considered); clearing fee 0,25p per trade; settlement fee 0,26p per trade; PE/EO-ratio analogue Xetra; exchange rate / : 1, Euronext * Xetra ** LSE *** Order volume in T

3 XXL GBV-Kolloquium "IT in Banken und Börsen" - WS 02/03 Xetra Facts - Successful development of Electronic Securities Trading in Germany with Xetra Growth market shares order book turnover shares percent Region Floor FWB % Current 92,4% Sep 2002 Implicit trading costs for Dax-Shares basis points for March of each year 14,4 CAGR -31% 10,7 Xetra ,9 Activity Jan-Sep Xetra increases marketshare in Germany continuously Liquidity Xetra improves market efficiency and lowers trading costs 5 Quelle: Kassamarktstatistik & Xetra Research Xetra Facts - Xetra the initiator for the cash market Access to over securities from countries world wide. Xetra maintains more than 90% of the market share for all stocks traded in Germany. Thousand Trades per Day ,6 62 7, , Q , ,0 2. Q ,9 3. Q Billion Euro per Day Source : Group Deutsche Börse Continuous Trading & Auction DAX MDAX NEUER MARKT SMAX STOXX XTF Liquid Foreign Stocks & Liquid Small Caps 30 German Blue chips 70 German mid caps Approx. 247 high growth stocks - Including NEMAX 50 Approx.76 small caps (blue micro chips ) Dow Jones Euro STOXX 50 and Dow Jones STOXX Exchange Traded Funds (ETFs) Over 560 liquid foreign stocks and small caps Hybrid Market Models Eurex Bonds Eurex Repo Auction Only Other Stocks Over 5000 equities mostly of foreign origin but also domestic small caps 6

4 Xetra Facts - Deutsche Börse s integrated offering Hedging / Arbitrage XTF Trading of 63 index funds and 22 actively managed funds Hedging / Arbitrage XETRA Trading of global blue chips, i.e. Xetra US Stars segment EUREX Derivatives on ETFs: 4 ETFs options and 4 ETFs futures Hedging / Arbitrage 7 Xetra Facts - The market for Exchange Traded Funds (XTF) Intraday-trading of Index funds and Actively Managed funds. Continuous market Pricing ( as opposed to once daily) Can be used as straight forward investment or hedging and arbitrage instrument. INDEX FUNDS (63) Issued by EETFC (2), based on DJ STOXX and DJ EUROSTOXX 50 Issued by INDEXCHANGE (31), based on DJ country and sector Indices and on DAX, MDAX and NEMAX 50. Issued by LDRS (13), based on FTSE Global indices Issued by Unico (7), based on MSCI indices. Issued by Fresco (10), based on DJ indices. Average Volume per Month in Million Euro Q3/2001 XTF - Xetra Turnover 3,759 3,946 6,997 5,474 4,892 Q4/2001 Q1/2002 Q2/2002 Q3/2002 Source: Deutsche Boerse AG 10/2002 5,792 ACTIVE FUNDS (22) Issued by DWS (11), based on European, Asian and American stocks and sectors such as Biotech, Internet, Pharmaceuticals, Gold mines. Issued by Unico (2), based on European and Global equities. Issued by Xavex (7) (Deutsche Bank), based on a Bond and Equity Portfolios 8

5 Xetra Facts - Xetra Outsourcing - Overview of Services Xetra Functionality System development Xetra back end with different market models Xetra front end open interface Values-API Xetra front end application Xetra Trader Technical Access to Xetra Members Currently about 400 Xetra members Multiple market access for Xetra Members Xetra Operations Initial Setup Operation of production and simulation environment including hardware Technical support Network Operations Various Access points world wide (e.g. in Dublin, London, Helsinki, Amsterdam, Vienna, Zurich, Milan, Paris, Madrid, Zurich, Hong Kong, Tokyo, Frankfurt) Operation of Back-Bone Bone lines including hardware Technical support Customer Service Technical member set-up & readiness support Technical Helpdesk <Outsourcing> 9 Xetra Xetra Facts Trading on Xetra Xetra Market Model German trading schedule & trading forms for stocks Order types & specifications Xetra trading screen Xetra Live trading screen for retail investors Safeguards in auctions and continuous trading Xetra XXL Xetra Block Crossing Market Model Xetra Best 10

6 Trading on Xetra Principles of the Market Model Concentration of total liquidity in one central order book per security Creation of equal and decentralised market access Market Model Equities & Warrants High degree of transparency of order book and trading activity Specific provision of additional liquidity by Designated Sponsor 11 Trading on Xetra - German trading schedule & trading forms for stocks 9:00 13:00 17:30 20:00 CET Continuous Trading Continuous Trading Continuous Trading Pretrading Posttrading Continuous Trading Auction Trading in an open order book with accumulated volumes displayed for individual limits Continuous price determination and execution of orders by price/time priority Auctions Call Phase Random end Price Determination Order book balancing * Market Transparency with open or partially closed order book Determination of an auction price corresponding to the highest Executable order volume with the lowest surplus 12 Display of indicative price, best bid /ask limit for equities. *For sponsored and DAX100 instruments there is no order book balancing phase but a market order surplus indication during the Call phase

7 Trading on Xetra - Order types & specifications of order types Xetra offers the European Harmonised Market Model agreed in 2000 by eight major European exchanges Limit Order Market Order Iceberg Order Market-to- Limit Order Limit orders are bid and ask orders which are to be executed at their specified limit or better. Market orders are unlimited bid or ask orders. They are to be executed at the next price determined. Iceberg Orders are large orders with quantities only partially visible in the order book. Normally used by the trader to avoid adverse price movements. Market-to-limit orders offer the high probability of execution of market orders combined with protection against unintended price impact. Validity Constraints Execution Conditions Good-for-day Good-till-date* Good-till-cancelled* Auction Only Opening Auction Only Accept Surplus Order Closing Auction Only Immediate-or-Cancel Fill-or-Kill Stop Limit Order Stop Market Order * Max. validity of 90 days 13 Trading on Xetra - Xetra trading screen Number of Buyers/Orders behind each limit. Accumulated buy quantity at a given limit. Best Buy price Best Sell price Accumulated sell quantity at a given limit. Number of Sellers/Orders behind each limit. Market Depth - 10 Best Bid / Best Ask prices updated in real time Indication of the trading phase (Continuous Vs. Auction) Order Entry Window A highlight on the screen indicates the execution of a Trade. 14

8 Trading on Xetra - Xetra LIVE trading screen for retail investors Market Overview All relevant order book information is shown. Additionally, order book depth and individual instrument charts may be opened and an alert function can be displayed. 1a Order Book Depth Five best bids & asks are shown on an instrument basis. 2 Intraday Charts 1a 3 Info Individual price information is shown within this window on the basis of the actual mouse position. 3 4 Instrument Profile A predefined or user-defined instrument group can be selected. 5 Instrument By entering either the national or international instrument code (ISIN) or the instrument short name, individual or a set of instruments can be selected. 15 Trading on Xetra - Safeguards in auctions and continuous trading Volatility Interruption In order to ensure price continuity a volatility interruption occurs if the potential execution price is outside a predefined price range. Market Order Interruption In order to improve the probability of execution of market orders during auctions, the call phase is extended if at the time of price determination a market order surplus exists. Static Corridor Upper Limit Dynamic Corridor Upper Limit Share price* Dynamic Corridor Lower Limit Static Corridor Lower Limit Volatility Interruption * Initial share price represents the Last Auction Price 16

9 Trading on Xetra Xetra XXL Block trading without negative price effects Concept Benefit The goal of Xetra XXL is to achieve efficency in block trading, improve transparency and reduce transaction costs to a level comparable to telephone/otc trading. Target group for Xetra XXL is Institutional Investors Clear increase in portfolio performance by the lowering of transaction costs. No spread costs/ no negative price effects/ competitive price and fee model. Fair and supervised block trading at stock exchange prices. Functionality Activity Anonymous trade of share blocks with completely closed order book (trading of DAX -, MDax and selected NEMAX50-Shares) Concentration of liquidity at fixedtimes in defined crossing auctions (34 auctions per day). Order execution after volume/time priority always basedon the current midpoint (in the middle between bid/ask of the Xetra order book). Trading volume until August 2002: 1,692 Million Major single deal: 311 Mio. (4 Million unit) 17 Trading on Xetra - Xetra Block Crossing Market Model 9:00 9:30 10:00 13:00 17:30 20: Continuous..... Continuous.. Continuous Trading Trading Trading Pretrading Posttrading Block Crossing Half hourly auctions (no auctions at 9:00, 13:00, 17:30 and 20:00) Available for DAX 30, MDAX and NEMAX 50 instruments Minimum order sizes 2M or 5M for DAX30 equities and 0.5M and 1M for MDAX and NEMAX50 equities. Determination of an auction price corresponding to the best Bid / best Ask midpoint of the order book at the time of the Price Determination. Large blocks can be crossed whilst avoiding adverse price movements or large number of partial executions. Pre Call Phase Block Crossing Auction Call Phase Midpoint price from order book Random end Matching Pre Call Phase 18

10 Xetra Xetra Facts Trading on Xetra Xetra Best Market demand Market Model Advantages of Xetra BEST 19 Retail customers demand immediate order execution with price advantage Customer wishes Immediate Execution (Ca. 60% of all floor-orders (mainly retail) are immediately executable; immediate execution is generally being paid through price surcharges (indirect transaction costs caused by spreads or market impact) Price advantage Best Execution Supervision of trading Transparency of execution 20

11 Motivation is the conviction that the differentiation of the industry structure will gain pace Order Value Distribution Current central limit order book transfers order value to investors Order value on floor also extracted by Maklers Internalization aims at realization of order value Consolidation of Industry Differentiated industry will lead to re-consolidation efforts (transparency, best execution) Xetra BEST already addresses these efforts at an early stage Reference market itself ensures best execution Differentiated industry structure Retail Investors Retail focused Intermediated Investors Universal Broker/Dealers Internal Platforms Deutsche Deutsche Börse Börse Institutional Investors Wholesale focused Off- Exchange Platforms 21 As active market designer Deutsche Börse counters trend of market fragmentation Deutschen Börse s contribution Provide equal access to a best execution functionality for all market participants Ensure investor protection by guaranteeing best execution as a neutral operator Integrate reference market (Xetra order book) and best execution-functionality Improve liquidity in the reference market Ensure transparency for the overall market Deutsche Börse s offer all market participants have access to Xetra BEST, Best Execution possible thorugh third party Best Execution as part of exchange trading with independent and neutral surveillance consistent price-/time-priority obligation to simultaneously provide quotes to the order book immediate publication of Xetra BEST trades 22

12 Xetra BEST provides a second execution venue in addition to the order book Xetra Direct order book entry Broker "Traditional" order routing alternatively: orders routed through by Best Executor Own Best Execution offer Investors Broker (XYZ Bank) Best Executor (XYZ Bank) Internal matching of order flow acquired from proprietary customers Broker (Sparkasse XY) Best Executor (ABC Bank) Third party Best Execution Xetra BEST offers opportunity to attract order flow from third party intermediaries 23 Xetra BEST Xetra BEST executes retail orders against the Best Executor immediately within the current Xetra spread Order Bank = Best Executor Order Xetra Backend Check, if order executable within Xetra BEST Investors Order Bank = Order Flow Provider Designation of Best Executor- ID Order if yes, immediate execution against Best Executor Quote if no, immediate entry into Xetra order book 24

13 Xetra BEST functionality is based on Xetra order book EXAMPLE OF ORDER MATCHING WITH XETRA BEST Customer order Internal quote by Best Executor Regular limit orders Xetra order book Bid Ask No Routing through Marketable "buy" order Internal matching? 25 Yes Matching with BE* quote Key principles price improvement order book consistency ex-ante entry of quotes immediate transfer of orders into the order book transparency additional liquidity provision *: BE = Best Executor Xetra BEST offers execution in reference to the Xetra order book Example - Order Matching in Xetra BEST (1/2) Xetra order book Bid Ask Volume Limit Volume 54, , , , , , ,30 Best Executor Bid Ask Reserve Relative Relative Reserve Size Size BoundaryLimit Limit BoundarySize Size ,00 +0,02-0,01 52, Best Quote Xetra-Spread = 54,35 : 54,39 Best Quote = 54,37 : 54,38 26

14 Xetra BEST offers execution in reference to the Xetra order book Example - Order Matching in Xetra BEST (2/2) Buy-Order Market Order ; Size: 50 Xetra order book Xetra-Spread = 54,35 : 54,39 Execution of the order with Best Executor Best Executor Best Price = 54,38 (0,01 Price improvement) Bid Ask Volume Limit Volume 54, , , , , , ,30 27 Possible order book situation 1. Size at best bid/best ask < Order Size Size Best Quote Buy-Order Market Order ; Size: 500 Xetra order book Xetra-Spread = 54,35 : 54,39 Bid Ask Volume Limit Volume 54, , , , , , ,30 1. Calculation of the volume weighted price P volume = (170*54, *54, *54,46) / 500 = 54, Determination of the execution price P Best Price = 54,42 (0,01 Price improvement) 3. Ex ante execution on Xetra Best Executor buys 170 for 54,39 and 50 for 54,41 (autom. Execution) 4. Execution of customer order Best Price = 54,42 (0,01 Price improvement) 28

15 Possible order book situation 2. (Order Size > Size Best Quote) or (Order Size > Maximum Order Size) Buy-Order Market Order; Size: 900 Execution of the order with Best Executor Xetra order book Xetra-Spread = 54,35 : 54,39 Bid Ask Volume Limit Volume 54, , , , , , ,30 no execution in Xetra BEST and immediate transfer of order into Xetra order book 29 Xetra BEST trades are immediately published but marked Information stream Time Volume Price Reasons for marking: 10:01:02 10:01:16 10:01: ,39 54,37* 54,39 guarantee separability for vwap calculations price has on-exchange status but is not an exchange price 10:01: ,35* * example for marking Xetra BEST trades 30

16 Best Executor acts also as liquidity provider within the Xetra order book Xetra BEST BEST Executor min. BEST 100 Executor equities offers Best Execution for own bietet customers Best and Execution for third-party für eigene orders Kunden(Order Dritte Flow an Provider) Best Executor acts also as Liquidity Manager Xetra Order Book Liquidity Manager provides liquidity in the central order book Exception: DAX30 stocks Requirements comparable to AA -Designated Sponsors max. Spread 2,5%-5% depending on segment min. quoting volume depending on segment Presence in the order book (average of quoting time) min. 9,5 hours Refund of transaction costs, if quoted spread is, on average, 75% narrower than max. spread Additional requirements (e.g. participation in auctions) 31 Xetra BEST is easy to communicate to the investor and the entire market Xetra BEST Best execution Xetra BEST execution is only possible, if the price is better than the actual price within the order book (price improvement or depth improvement). No Partial Execution Order book consistency Ensure consistent price-/time priority within the order book; all orders in the order book with better limits than Xetra BEST trades have to be executed in advance. Ex ante entry of Best Executor Quotes BEST quotes must be submitted before the orders are entered. Automatic routing into order book Orders not executable against pre-entered BEST quotes, are routed into the Xetra order book immediately. Transparency Immediate dissemination of all Xetra BEST transactions with price and volume. Liquidity management in the Xetra order book Obligatory quotes from Best Executors in Xetra order book. 32

17 What are the advantages of Xetra BEST? Best Executor Order Flow Provider Investor First fully integrated hybrid market model Interaction with own and acquired order flow Well known Xetra interface Usage of established pan-european network Provide customers with immediate Best Execution One stop shop on most liquid trading system Default order routing due to exchange status No need to establish additional infrastructure Best Execution Immediate execution No partial fills Independent trading surveillance 33