Moscow Exchange Launches Efficiency Program

The measures seek to limit the amount of extraneous orders sent to the exchange, at a limit of 20 per ruble paid in commission. The program is similar to other such moves by US exchanges that have recently met with mixed success. Nasdaq OMX, for instance, operates a messaging efficiency program where traders are penalized for sending large amounts of orders that don't result in trades. Direct Edge also launched a similar initiative, but retired it recently without explanation.

Moscow Exchange was quick to hail the immediate success of its program, claiming that only ten high-frequency trading (HFT) participants exceeded the threshold. It says that adjustment of algorithms has resulted in a fivefold reduction of traffic on the securities market, and twofold on the FX market, while retaining order and trade volume sizes. The company estimates that around 40 percent of market share is taken by HFT participants on its stock market, with the strategy responsible for around 97 percent of orders, and positions itself as receptive to the practice. The exchange has highlighted the effectiveness of transaction charges on FORTS, Russia's derivatives market, as a way of reducing system load and protecting investors from technical incidents.

"Moscow Exchange operates a world-class state-of-the-art software and hardware complex with the capacity to process the volume of the orders exceeding the current peak values multiple times", says Vahan Vardanian, managing IT director at Moscow Exchange. "The terms of applying the surcharge by the Moscow Exchange have been designed in order not to hamper the HFT trading development in any way. The new initiatives of the Exchange together with encouragement of the trading members will contribute to the Russian financial market development and the market turnover growth."

HFT has experienced a backlash in recent years from more traditional stock brokers who see it as a method of gaming the market and hampering real investment, and from certain elements of the sell side, which are concerned about its effect on large-scale block orders. It is facing oversight from both US and EU regulators, while a number of initiatives in both equities and FX have been launched to limit its effectiveness.

The company estimates that around 40 percent of market share is taken by HFT participants on its stock market, with the strategy responsible for around 97 percent of orders.