Xetra Best - Integration of Market Access Intermediaries - Requirements into Market Design

Innovative auction design has to consider both the outcome of market processes in terms of market quality and the business models of market participants. Recent competition for, and cost pressure in acquiring retail order flow has changed the role of market access intermediaries, i.e. banks or brokers, in European equity markets. They are attempting to extract a higher value out of the retail order flow especially by providing internal matching against their own trading books commonly referred to as internalization. In this environment, Deutsche Bouml;rse designed an innovative equity trading market model fully integrated into its Xetra trading system. The paper presents this market model (Xetra BEST) based on an analysis of the changing role of market access intermediaries. It derives and validates design requirements for a model that aims at maintaining a high level of market efficiency while serving the needs of market access intermediaries in an internalization framework