Hans-Peter Burghof

High-Frequency-Trading

High-frequency trading (HFT) has recently drawn massive public attention fuelled by the U.S. May 6, 2010 flash crash and the tremendous increases in trading volumes of HFT strategies. Indisputably, HFT is an important factor in markets that are driven by sophisticated technology on all layers of the trading value chain. However, discussions on this topic often lack sufficient and precise information. A remarkable gap between the results of academic research on HFT and its perceived impact on markets in the public, media and regulatory discussions can be observed.The research at hand aims to provide up-to-date background information on HFT. This includes definitions, drivers, strategies, academic research and current regulatory discussions. It analyzes HFT and thus contributes to the ongoing discussions by evaluating certain proposed regulatory measures, trying to offer new perspectives and deliver solution proposals.

Credit And Information In Universal Banking

The internal aspects of bank lending, information production, and interaction between debtor and bank lending officers are still a black box to banking theory. To achieve some empirical insight into these aspects of financial intermediation, I analyze the credit files of six lending relationships between a German universal bank and medium sized firms. If no crisis occurs in these lending relationships, bank monitoring uses mainly cheap, retrospective, internal data. Most of the data the bank uses is not publicly available. This finding supports the concept of banks as delegated monitors that have an informational advantage over capital markets. I also observe signalling and monitoring behavior of the debtor, which indicates that the bank also acts as delegated contractors. Bank lending officers seem to receive information about their debtors not only from monitoring, but also from the debtors’ behavior. Although my results are obtained from a clinical, non-representative study, they nevertheless provide some empirical evidence on the potential relevance of theoretical concepts of bank lending.

THE NEUER MARKT: AN (OVERLY) RISKY ASSET OF GERMANY’S FINANCIAL SYSTEM

In this chapter, we describe the rise and fall of Germany’s Neuer Markt from its promising start to its ultimate failure. We show that the Neuer Markt was designed to serve the special needs of small and medium sized growth firms. However, some regulatory flaws, insufficient means to enforce the rules, the IPO frenzy and the bursting of the stock market bubble destroyed its reputation beyond recovery. The closing of the Neuer Markt and the rebranding and restructuring of the entire Frankfurt stock market indicate the seriousness of the crisis of German public equity markets.

Access to Stock Markets for Small and Medium-Sized Growth Firms: The Temporary Success and Ultimate Failure of Germany's Neuer Markt

Germany’s Neuer Markt was the largest of numerous new stock markets introduced in Europe during the nineties of the last century to address small and medium sized innovative growth firms. We argue that access to public equity markets is particularly valuable for such firms. However, the conception of the Neuer Markt contained some regulatory flaws, and the Neuer Markt developed along with a tremendous stock price bubble that broke clamorously in early 2000. As a consequence, the reputation of the Neuer Markt suffered from an extraordinary decline in market value and numerous scandals and insolvencies. Primary markets came to an almost complete standstill, and the Neuer Markt had to be abandoned at the end of 2002. Thus, apart from the window of opportunity provided by the short-lived Neuer Markt, the question of how German innovative growth firms could enter public equity markets remains unresolved. From this state of affairs, we expect negative effects on innovation and growth in the German economy.

Retail investor information demand – speculating and investing in structured products

We study the impact of retail investor information demand on trading in bank-issued investment and leverage structured products, which are specifically designed for retail investors. Stock-specific information demand positively predicts speculative trading activity. Furthermore, we find a positive relationship between market-wide information demand and order aggressiveness and order uncertainty for speculating and investing activity. Whereas information supply is associated with speculative long positions, information demand does not induce investors to be predominantly long or short. Finally, we do not find retail investor information demand to contribute to an upward price pressure on security prices. In contrast, information supply exerts negative price pressure. Overall, retail investor trading in individual stocks is much more strongly influenced by market-wide information demand instead of firm-specific information demand. This implies a low informational efficiency of retail investor speculation and investing activity.

The Economics of State Subsidies in Early Stage Financing

Abstract We analyze the effect of state subsidies on early stage investments. In a two‐period investment model with incomplete stage financing contracts, we describe optimal and second‐best investment levels. Optimality depends on external effects: given that private early stage financing generates positive external effects, the subsidies might be designed to use scarce state money most efficiently to mobilize private investment capital. However, a subsidy might also contribute to greater efficiency of the contractual relationship itself without regard to external effects. Refinancing subsidies can be optimal under both perspectives and are always optimal under last of the two approaches. The comparison of the main types of subsidies, i.e. refinancing subsidies, guarantees and direct investments, speaks against the use of guarantees. Finally, we show that our results do also hold if some investors (e.g. venture capitalists) have a superior screening capability.

Die Auswirkung einer Höchstverschuldungsquote auf den Bankenmarkt

We analyze from a theoretical perspective to what extend the implementation of an additional bank capital regulation in form of a leverage ratio can meet the expectations the Basel Committee for Bank Supervision puts in it. The model shows that an affected bank, which maximizes profits under an existing value-at-risk capital charge, is forced by the implementation to specialize and has a tendency to choose the same allocation of its risk portfolio as other affected banks. Contrary to the aims of the Basel Committee, the banking market would be more prone to crisis, because the diversity of business models decreases. en

Allocation of Economic Capital in Banking: A Simulation Approach

The approach describes the difficulties implied through consistently equating a bank’s allocation of economic capital with an allocation of decision rights in the form of value-at-risk limits. These days, risk measurement through value-at-risk methods is widespread. Using these methods strategically in order to optimize the return to risk ratio actively on an overall bank level is hardly developed. Thereto we model a bank’s central planner coping with correlations’ uncertainty and learning about the limit addressees’ skills. In order to face the underlying mixed integer non linear program the model provides the central planner with a heuristic optimization approach. According to the given information and the assumed rationality of the central planner, resulting limit allocations are optimal in a portfolio theoretical sense. The numerical model generates a data set providing evidence concerning this allocation method’s superiority compared to others.

High Frequency Trading Kosten und Nutzen im Wertpapierhandel und Notwendigkeit der Marktregulierung

Aktuelle Veröffentlichungen zeigen, dass das High Frequency Trading (HFT) für 10 % bis 70 % des Ordervolumens im Handel mit Aktien und Derivaten verantwortlich ist (Gomber et al. 2011; Hendershott and Riordan 2011; Zhang 2010). Diese Beobachtungen führen zu einer kontroversen Debatte um positive und negative Auswirkungen von HFT auf die Liquidität und Effizienz auf elektronischen Wertpapiermärkten sowie um Kosten, Nutzen und die Notwendigkeit einer Marktregulierung. So erwägt unter anderem die Europäische Union derzeit, unter der Annahme, dass die sehr kurzfristig orientierten HFT-Handelsstrategien zu Marktfriktionen führen, die Einführung einer Finanztransaktionssteuer, um marktschädliche Auswirkungen von HFT-Strategien einzudämmen. Im Diskurs zeigt sich, dass HFT nicht einheitlich von den diskutierenden Parteien definiert wird. Dies kommt zum Teil daher, dass HFT-Fragestellungen aus verschiedenen, gleichwohl verzahnten, Perspektiven und Fachgebieten aufgeworfen werden. So stellt sich aus einer gesamtwirtschaftlichen Sicht die Frage, ob HFT die Allokationsfunktion der Börsen behindert oder unterstützt. Die Kapitalmarktforschung und die Wirtschaftsinformatik behandelt Fragen zur zukünftigen Intermediation und Architektur von Wertpapierhandelssystemen, zur Liquiditätswirkung des HFT und zu Auswirkungen auf Preisvolatilitäten. Aus Sicht der Finanzaufsicht und Politik stellt sich die Frage, ob HFT eine stabilisierende oder destabilisierende Funktion auf Finanzsysteme hat und wie eine zukünftige Regulierung auszugestalten ist. Dieser Diskussionsbeitrag soll zur Begriffsklärung dienen und die aktuell geführte Debatte aufgreifen. Hierzu haben wir Beiträge von Vertretern der Wirtschaftsinformatik, der Betriebswirtschaftslehre, der Deutschen Bundesbank und der Deutschen Börse AG gesammelt. Folgende Personen beteiligen sich an der Diskussion (in alphabetischer Reihenfolge): Prof. Dr. Hans-Peter Burghof und Arne Breuer, Professur für BWL insb. Bankwirtschaft und Finanzdienstleistungen, Universität Hohenheim, Prof. Dr. Peter Gomber, Professur für Betriebswirtschaftslehre, insbesondere e-Finance, Johann Wolfgang GoetheUniversität Frankfurt, Dr. Joachim Nagel, Mitglied des Vorstands, und Dr. Rafael Zajonz, Zentrale Marktanalysen, Portfolio, Deutsche Bundesbank, Rainer Riess, Geschäftsführer der Frankfurter Wertpapierbörse (FWB), und Michael Krogmann, Executive Vice President Xetra Market Development der Deutschen Börse AG, sowie Prof. Dr. Ryan Riordan, Institut für Informationswirtschaft und management, Karlsruhe Institute of Technology (KIT). HFT ist ein Teil des Algorithmic Trading. Gomolka (2011, S. 18) definiert Algorithmic Trading als „. . . die Ausführung oder Unterstützung einer Handelsstrategie unter Zuhilfenahme von intelligenten, elektronischen Lösungsverfahren (Algorithmen), . . . “ Algorithmic Trading umfasst somit sowohl computerunterstütztes als auch rein computergeneriertes Handeln auf der Sell(Anlageanalyse) und der Buy-Side (Handel). Handelsstrategien im Algorithmic Trading können sowohl kurzfristig als auch langfristig ausgerichtet sein. Gängige HFT-Definitionen haben gemein, dass HFT auf computergenerierten Handelsentscheidungen in Echtzeit ohne menschliche Interaktionen basiert und eine automatisierte Orderaufgabe und Ordermanagement zugrunde liegt. HFT bezieht sich auf kurzfristige Handelsstrategien und vollzieht sich im Extremfall im Mikrosekundenbereich bei kleinsten Preisunterschieden. Daraus folgen sehr geringe Margen pro Handelsabschluss sowie sehr kurze

The Role of Traditional Exchanges in Fragmented Markets

The Markets in Financial Instruments Directive (MiFID) has changed regulated European equity trading significantly after its introduction in November 2007. This dissertation analyses the impact of MiFID on trading intensity and market quality from an intraday and interday perspective by investigating the British equity market. A second focus of this work is the analysis of the influence of high frequency traders in a fragmented market environment. In this context, this dissertation addresses the behavior of market participants and their influence on market quality during particular market scenarios in a fragmented market environment. Die Einfuhrung der Marktregulierungsrichtlinie MiFID im November 2007 hat den regulierten Wertpapierhandel in Europa masgeblich verandert. Diese Dissertation untersucht die Auswirkungen der MiFID auf Handelsintensitat und Marktqualitat am Beispiel des britischen Aktienmarktes aus Intraday- und Interdayperspektive. Ein zweiter Schwerpunkt der Arbeit liegt auf der Analyse des Einflusses von Hochfrequenzhandlern auf die einzelnen Handelsplatze. In diesem Zusammenhang wird das Verhalten der Akteure in unterschiedlichen Marktsituationen beleuchtet und deren Einfluss auf die Marktqualitat im Spannungsfeld der Handelsplatze beschrieben.