Stock exchanges: Silent Revolution: How computer trading conquered the stock exchange

Hustle and bustle, shouting, gesticulating - this has been history on the Frankfurt stock exchange floor for a quarter of a century.

Stock exchanges: Silent Revolution: How computer trading conquered the stock exchange

Hustle and bustle, shouting, gesticulating - this has been history on the Frankfurt stock exchange floor for a quarter of a century. Unless a well-known company is celebrating its IPO, the trading floor in the city center is pretty quiet.

From November 28, 1997, Deutsche Börse was one of the first providers worldwide to focus consistently on electronic securities trading: "Exchange Electronic Trading" - Xetra for short - turned the world of stock exchanges upside down.

In the beginning, many brokers were not that enthusiastic about the new computer exchange. "Up to 1,500 people crowded the trading floor every day," recalls stock exchange veteran Fidel Helmer, who played an active role in shaping events on the Frankfurt Stock Exchange from 1970 until five years ago. "The brokers were rather conservative at the time: any innovations were viewed very skeptically."

Warnings to retail investors

As late as September 2000, the magazine "Finanztest" warned private investors: "If someone enters the market without a limit or with an imprecise limit, which can definitely happen to a private investor, he runs the risk of being ripped off." The advice from "Finanztest": "Don't touch Xetra. You'll save yourself unnecessary trouble."

But computer trading worked well from the start, says Helmer, the long head of securities trading at the private bank Hauck

Quite obviously, the skeptics did not prevail: In the current year, an average of around 1 million orders were executed on trading days on the Xetra trading platform, according to information from Deutsche Börse. Daily turnover: currently more than five billion euros. Based on the order book turnover of the German trading venues (Xetra, Frankfurt, Tradegate, Stuttgart, Munich, Hamburg, Hanover, Düsseldorf and Berlin), the Xetra trading venue currently has a market share of around 80 percent, according to Deutsche Börse.

Overwhelmed by success

The other German stock exchange locations felt overwhelmed by Xetra in the early years. "The fully electronic trading system hits the lifeblood of the regional financial centers", summarized the "Handelsblatt" at the time the situation of the smaller stock exchanges from Munich to Bremen. The regional stock exchanges in Germany had to look for niches in order to ensure their survival: the Stuttgart Stock Exchange, for example, specialized in warrants, while Munich focused on foreign stocks.

The Stuttgart-based company later reported that Xetra had succeeded in "tying the main market in the share business to itself". According to figures from Deutsche Börse, 3,532 securities can currently be traded on the electronic trading platform with a click of the mouse. 144 trading participants from 17 countries are admitted to the Frankfurt Stock Exchange, more than 3000 traders are connected.

"Xetra is the global reference market for trading in German securities and in European trading, with its state-of-the-art technology, it is the leading market," sums up Deutsche Börse Board Member Thomas Book. "Xetra belongs to Deutsche Börse like bull and bear on the Frankfurt Stock Exchange." The system has stood for "stability, liquidity and transparency" for a quarter of a century. The stock exchanges in Vienna, Malta (Malta Stock Exchange) and Sofia (Bulgaria Stock Exchange) also rely on the technology from Frankfurt.

Quantum leap and expensive conversion

The stock exchange boss at the time, Werner Seifert, was already enthusiastic about the introduction of Xetra about a "quantum leap for the financial center Germany" - and would have preferred to do away with floor trading altogether. Instead, in 2006/2007, Deutsche Börse put around five million euros into the renovation of the Frankfurt Stock Exchange.

Today's places in the circular working areas that look like islands for employees of securities and commercial banks are rarely all occupied. "It's a bit like Hollywood," says the long-standing works council and supervisory board member of Deutsche Börse, Johannes Witt, during a visit to the trading floor: the trading floor with the Dax table as a backdrop for the evening TV stock market news. "The stock exchange is really only for the media," agrees Fidel Helmer. "But that's good, because that's why the stock market is on TV every day."

The hustle and bustle of bygone times can only be found in a museum: Anyone who enters a replica of the traders’ offices from the 1980s in the Frankfurt Stock Exchange’s visitor center and picks up the phone there will at least get an impression of how screaming traders determined the ups and downs of prices before computers conquered the stock market.

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