Eurex blames dealers for system limits

Swiss-German derivatives exchange Eurex is clamping down on dealers that overload its system with transactions and price information. The exchange said the growing use of automated quote engines by dealers threatens to overload its trading capacity and has imposed fines on dealers that breach its limits.

But some dealers and the independent software vendors that provide dealers with front-end trading systems said Eurex could easily upgrade its technology to cope with higher volumes but is shifting the responsibility on to them instead.

Eurex denied reports that it does not have sufficient bandwidth capacity to handle transactions. A Eurex spokesman said the exchange’s operations have never slowed due to transactions clogging its system. Such an event would only occur if a large number of participants misused their pricing software, said the spokesman.

Eurex sets limits on how many transactions – primarily requests for quote and price updates – a dealer can place each day. It discourages firms from exceeding these limits by fining them up to €1,000 per trading day.

The limits per member firm are 8,000 transactions per day for money market futures, 9,000 for Dax futures and Dow Jones Euro Stoxx, and 12,000 for capital market futures. Limits were introduced at the German derivatives exchange prior to its merger with the Swiss Exchange in 1998. Eurex refused to disclose how many dealers it has fined for breaching the limits. But one Chicago-based firm was fined €37,500 by the exchange only days ago, according to press reports.

Software vendors said there is nothing to stop them adding a limiting functionality to the front-end trading systems they provide their dealer clients. This was requested by Bank of America 18 months ago after it was fined by Eurex for exceeding its transaction limits, said a source at the US bank. But senior dealers would like Eurex to develop a long-term solution to potential overload.

But the Eurex spokesman said any long-term solution lies in changing the way firms update their prices, adding that the exchange has no plans to increase the capacity of its system specifically to cope with potential overload. "Eurex wants to remain a low-cost platform," he added.