This document discusses high frequency trading (HFT) and its impact on market structure. It begins by explaining that HFT has emerged due to technological progress and regulatory changes. It then defines HFT and differentiates it from other types of automated trading. The document notes that while there is no standardized definition, HFT is generally characterized by using computer algorithms to conduct arbitrage trading with no overnight positions. It also discusses how HFT has led to fragmented liquidity and better price discovery. The rest of the document outlines some of the effects of HFT, such as smaller orders and trades, and more messages and activity. It proposes different approaches for regulating HFT and describes some of the measures taken by Nasdaq Nordic to

1. THE VIEW FROM THE
EXCHANGE
October 6, 2015

2. MARKET STRUCTURE AND
A HEALTHY TRADING ECOSYSTEM

3. WHY HFT?
High speed algo trading: confluence of technological progress and regulatory
changes in MiFID I
3

4. 4
Terms like robot
trading, computer
trading, Algoand HFT
are used at random.
The term olgo trading can
be segmented into
traditional automated
trading and High Frequency
Trading
WHAT ARE WE
TALKING ABOUT?
HFT
Algo trading
Total trading

5. Source: 2009 McCann quantitative and qualitative study with over 200 CFOs and senior executives.
COMMON
FEATURES OF HFT
Arbitrage
trading – HFT is
the electronic
equivalent to day
trading
No
overnight
positions
Proprietary
trading
Computerized high-
speed
micro
seconds
trades
AUTD- accounts
with Order-to-trade
over 10
Based on Nordic list
share trading
HFT is conducted
both by
specialist
firms and by the
traditional
members, including
large banks
5
No standardized
international definition
Still, there are a few common
characteristics

6. Document Title6
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Small Cap
Increased activity
Efficient pricing
= lower cost for investor
Efficient pricing

7. NASDAQ OMX 7
Smaller orders
Smaller trades
More orders
More trades
More delete messages
Orders/trade ratio up
More information to disseminate
• Less liquidity in the order book
• Harder to execute large orders
 Need to use algorithms
 Dark liquidity pools
 Hybrid order books
 New order types
Latency & capacity in focus
More revenues & more cost
EFFECTS OF HIGH FREQUENCY TRADING
Fragmented liquidity
Better price discovery?
High Frequency Trading

8. NASDAQ OMX 8
RIGHT AMOUNT
OF HFT?
Avoid HFT by rules,
regulations and fees
Allow HFT with restrictions:
• Order throughput
• Order trade ratios
• Cancellation restrictions
• Penalties / fees if broken
Possibly liquidity provider schemes focusing on HFT flows
Fees not focus to get maximum HFT flows
• All-in to get as
much HFT flow as
possible
• No or very limited
restrictions
• Fees focused to get
HFT flows
• Special liquidity
provider schemes
for HFT

9. NASDAQ NORDIC’S MEASURES
9
• World class
electronic
surveillance
SMARTS
• Order book
DisciplineOTR Limit
• Prevent un-
intended price
movement
Volatility
Guard
Nasdaq Nordic ahead of the
curve
• Tools and standard procedures
apply to all market participants
on Nasdaq Copenhagen
EU regulation:
• Common rules and guidelines
in all markets
• HFT is pan-European –
measures should be pan-
European

10. MEASURES
Limit on order to trade ratio to
discipline the order book:
• Introduced 1:250 in July
2011
• Adjusted to 1:100 in
December 2013
• Weight factor: Fee calculation
dependent of order proximity
to BBO.
Volatility Guard (Kursvagt)
Electronic circuit breaker pauses
trading in shares that drop or
increase suddenly and greatly.
For C20 shares deviation limit is
3 pct from last sale price and 10
per cent from opening price.
Provides time-out for the market
to reconsider price direction in
single stocks
Document Title10

11. SMARTS SURVEILLANCE SYSTEM
MONITORING AND REPLAY CAPABILITIES

12. SMARTS SURVEILLANCE SYSTEM
MONITORING AND REPLAY CAPABILITIES