Cross-border stock trading

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As cross-border share trading refers to a stock trading strategy that is based on different prices on stock exchanges exploit in different countries, or liquidity of regional, provide non-cash exchanges.

Example of a cross-border transaction

For example, Roche shares are traded on the Swiss stock exchange at CHF 230.00 ( best bid price ) to CHF 230.50 ( best ask side ). If 1 EUR = 1.08 CHF , a cross-border trader could place a buy order on the German XETRA exchange system at 212.95 EUR and a sell order at 213.45 EUR.

Some banks in Germany do not offer their private customers access to the Swiss stock exchange. This means that a private customer who wants to buy Roche shares can only buy the shares on a German stock exchange. If he now orders the share on a German stock exchange, it is very possible that he will buy the share from a cross-border trader. The moment the cross-border trader sells the shares in Germany to private customers, he will stock up again on the Swiss stock exchange. The cross-border trader then has to relocate the Roche share that he has just bought in Switzerland to Germany, as the sale on XETRA obliges him to deliver the share in Germany.

Automated computer trading

Cross-border trading is often carried out using automated computer trading systems , whereby a computer independently compares the prices on different exchanges, taking into account the currency conversion, and, if necessary, independently sends buy and sell orders to the various exchanges.

Risks

The cross-border trader can thus reap a supposedly risk-free profit. However, the following risks apply:

  • In the second in which he has sold the share on the 1st stock exchange, the price on the 2nd stock exchange can run away. Despite fast high-frequency trading programs, this cannot be completely ruled out.
  • The multitude of price updates from all stock exchanges in the world can result in transmission errors, so that alleged arbitrages are not arbitrages at all and the cross-border trader suffers a loss.
  • The cross-border trader has the buy-in risk. In the example given above, he bought the Roche share in Switzerland. However, it can happen that the Swiss stock exchange - for whatever reason - does not deliver the T + 2 share (two-day settlement ). The XETRA exchange, however, insists on the delivery of the share, since, from the XETRA exchange's point of view, the cross-border trader has sold a share that he does not own. If the cross-border trader still fails to deliver the share, the XETRA exchange can decide to start a buy-in process in order to continue to guarantee the integrity of the exchange. Various market participants are asked whether they can step in and deliver Roche shares, even at a much higher price. The price can even be twice as high as the "normal" price. The difference to the much higher buy-in price and the "normal price" is then billed to the cross-border retailer.

criticism

This type of trading has a positive aspect for the general public, as it reduces the difference between buying and selling prices on the regional stock exchanges and thus leads to private customers, who often trade on the local stock exchanges, paying fewer fees. Automated cross-border trading is thus an example of a type of high-frequency trading that makes a positive contribution to society.

The Dutch financial market regulator AFM examined these high-frequency trading models and concluded in 2010 that there are no reasons to restrict high-frequency trading. They go on to explain that this assessment changes, however, when illegal trading strategies are used.

literature

  • Changmin Chun: Cross-border Transactions of Intermediated Securities: A Comparative Analysis in Substantive Law and Private International Law . Springer 2012, ISBN 978-3642426674
  • Hali J. Edison and Francis E. Warnock: Cross-Border Listings, Capital Controls, and Equity Flows to Emerging Markets. BiblioGov 2013. ISBN 978-1288729074

Web links

Individual evidence

  1. ^ High frequency trading: The application of advanced trading technology in the European marketplace. (PDF) AFM, November 2010, accessed on November 16, 2016 (English): "Market making is the provision of liquidity in listed instruments which are not liquid on the platform in question."
  2. ^ Netherlands Authority for the Financial Markets: High frequency trading. Netherlands Authority for the Financial Markets, November 16, 2016, p. 14 , accessed on November 16, 2016 (English): "Market making is the provision of liquidity in listed instruments which are not liquid on the platform in question. In this sense, HFT market making is nothing new. "
  3. ↑ na: Key Trends in Global and Asian Electronic Trading. In: SunGard. SunGard, November 16, 2016, accessed on November 16, 2016 (English): "revolutionary changes in high frequency cross-border trading, together with the increasing popularity and prevalence of dark pools and algorithmic trading"
  4. ↑ Eurex Marketing: Eurex Clearing - Handling of delivery failures. In: www.eurexclearing.com. Retrieved November 16, 2016 .
  5. ^ AFM evaluates the use of high-frequency trading (HFT) in European financial markets. AFM, November 18, 2010, accessed on November 16, 2016 (English): “The Netherlands Authority for the Financial Markets [Autoriteit Financiële Markten, or“ AFM ”] sees no grounds for restricting the use of“ high-frequency trading ”( HFT). "
  6. ^ AFM evaluates the use of high-frequency trading (HFT) in European financial markets. AFM, October 18, 2010, accessed on November 30, 2016 (English): "This assessment changes if HFT were to be used to implement an illegal trading strategy, but in this respect as well HFT is no different from other trading strategies."