Ducks and Economics

Stephan Kraus:

Deutsche Börse’s electronic trading system Xetra features volatility interruptions as safeguards against potential flash crashes. Volatility interruptions are automatically initiated if the potential execution price of an order lies outside a pre-defined price range around a given reference price. Once a volatility interruption has been initiated, continuous trading is interrupted and a change in trading form to auction is triggered. Market participants are informed of this market situation and may react to it by either adding, modifying or deleting orders and quotes. Continuous trading resumes after a certain minimum duration of the auction. In case of larger price deviations, the auction is extended until the volatility interruption is terminated manually. Given the described circuit breaker mechanism, a scenario similar to May 6 in the US is impossible to happen on Xetra. This is particularly true since the calculation of the DAX is based on Xetra data only, thereby effectively taking into account trading interruptions on Xetra while other platforms may continue to trade.