High-frequency trading (HFT) is an algorithmic trading technology allowing securities transactions to be executed via extremely quick high-performance computers. HFT participants provide liquidity to markets, dampen volatility, reduce total transaction costs, and significantly contribute to the reduction of spreads. The resulting improved price quality also benefits companies through lower financing costs. HFT thus plays a major role in efficient and functioning capital markets and has economic benefits.

However, as with other technological innovations, certain risks such as increased volatility, market manipulations or technical errors cannot be ruled out. Deutsche Börse Group effectively counteracts these risks through comprehensive safety measures such as plausibility checks and circuit breakers, thereby safeguarding proper conduct of trading. Additional regulatory measures which contribute to the minimisation of these risks should expressly be supported. 

Engaged firms must ensure maintenance of the necessary technical infrastructure in terms of their systems’ resilience and act in compliance with certain algorithmic trading thresholds preventing market distortions and market abuse. Investment firms are obliged to provide competent authorities with a description of the nature of its algorithmic trading strategies, details of the trading parameters or limits to which the system is subject, the key compliance and risk controls that it has in place and details of the testing of its systems at any time upon the authority’s request.

Trading venues must provide their share in preventing distortions caused by algorithmic trading through the building-in of circuit breakers, the regulation of minimum tick sizes, and by putting caps on the unexecuted orders in relation to transactions. HFT is regulated at EU level by MiFID II/MiFIR and at German national level by the German High-Frequency Trading Act.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.