UPDATE 2-Deutsche Boerse CEO downplays algo trading ills

* European Union rules failed to boost transparency -CEO

* Automated markets under the microscope globally
(Adds NYSE comment; “flash crash,” EC background; byline)

By Jonathan Spicer

NEW YORK, Oct 19 (BestGrowthStock) – The recent criticism of
high-frequency algorithmic trading in capital markets is
overstated, Deutsche Boerse AG (DB1Gn.DE: ) Chief Executive Reto
Francioni said on Tuesday.

The head of the German exchange operator, addressing a New
York conference hosted by Baruch College, also said landmark
European Union rules introduced in 2007 failed to boost
“transparency” in the trans-national marketplace.

The rules, called the Markets in Financial Instruments
Directive (MiFID), are being reviewed as investors, politicians
and regulators ask whether the automation of the marketplace is
problematic, particularly high-frequency trading (HFT).

“The case against HFT is generally overstated,” Francioni
said, noting that these computer-based traders quickly correct
price discrepancies, act as market makers and lower the costs
of trading.

The May U.S. “flash crash,” in which the Dow Jones
industrial average dropped 700 points in minutes before sharply
recovering, amplified the debate over high-frequency trading. A
U.S. regulator report this month said high-frequency trading
played a role in the plunge. [ID:nN01141642]

Meanwhile Michel Barnier, the French commissioner in charge
of the EU’s regulatory overhaul, said last week that this type
of trading requires extra regulation, given the risks it poses.
[ID:nN12159642]

Francioni added in his keynote speech that financial
markets are now entering a new landscape in which
“re-regulation” will replace “de-regulation.”

High-frequency traders, including proprietary firms, hedge
funds and banks, use computer codes to submit rapid-fire bids
and offers and make markets on tiny price imbalances.

Exchanges in Europe and elsewhere, while relying on
high-frequency trading’s high trading volumes, have complained
about the parallel growth of alternative trading venues that
they say harm the fair setting of prices for public stocks.

“While MiFID certainly has increased competition of trading
platforms, it has failed its objective of equally improving
market transparency,” Francioni said.

Largely because of European alternative venues, called
multilateral trading facilities (MTFs), Deutsche Boerse
typically has less than 70 percent of trading in German stocks
compared to 98 percent in early 2008, according to Thomson
Reuters data.

Similar competition and market fragmentation has occurred
in the United States over the last decade, spurring exchanges
to call for an equal playing field.

“If people are performing the same function, they should be
subject to the same level of oversight,” Joe Mecane, co-head of
U.S. listing and cash execution at Big Board parent NYSE
Euronext (NYX.N: ), later told the conference.
(Reporting by Jonathan Spicer. Editing by Robert MacMillan and
Derek Caney)

UPDATE 2-Deutsche Boerse CEO downplays algo trading ills