Deutsche Borse to penalise algo network capacity 'abuse'

The exchange says some traders are restricting network capacity unnecessarily

Deutsche Borse has vowed to penalise traders who excessively use algorithms to fire orders into the exchange, while not completing a large number.

The stock exchange is concerned that traders' algorithms are making orders based on news, but then quickly cancelling them when sentiment changes, the Financial Times reported. It is planning to introduce a charge for traders cancelling a certain proportion of orders.

The cancelled orders, especially if in large volumes, take up valuable network capacity at the exchange. Other stock exchanges, including Borsa Italiana, are said to be making similar moves.

Andreas Heuer, business head at Deutsche Borse's Xetra exchange, told the FT that the company wanted to discourage "capacity abuse".

"The intent is predominantly to secure the integrity of our system. We want to disincentivise our trading members from using stupid algos which result in only a small number of trades but a high number of order transactions," he said.

Those traders were "simply using system capacity" rather than creating value in the market, he said.

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