Scruffy Berlin looks to future in high finance

Most people wouldn’t consider the scruffy German capital an innovative financial centre, but as Michael Dumiak reports, some serious business is going down not far from Berlin’s once-infamous Zoo train station.

Scruffy Berlin looks to future in high finance
Photo: DPA

The Börse Berlin, a stock exchange known in recent years mostly for light trading and continual self-reinvention, has now landed investment from massive Chicago hedge fund Citadel enabling it to tilt at some pretty lofty goals.

In five years, chief executive Artur Fischer says, Börse Berlin will be the European trading venue next to the big exchanges in London and Frankfurt. Berlin also aims to become a stiff competitor to other alternative trading systems like New York-based Chi-X, a successful multilateral trading facility and unit of Japanese securities giant Nomura. Chi-X Europe traded $300 billion worth of securities on its platform in the second quarter of this year.

“With the help of Citadel, we will be a significant exchange in Europe, in the magnitude of Chi-X and maybe bigger,” Fischer says.

The exchange business across Europe, from London to the Baltics, is in an extended period of flux. It’s marked by a maturing level of technological innovation and experience with alternative trading systems, with national economies still volatile, burdened under severe strain. Opportunities – and pitfalls – abound.

So after the dust settled on an abortive plan for Nasdaq Europe to monitor its quotes from Berlin, the Börse bought into a London-based trading platform called Equiduct two years ago. It now hopes that Equiduct will be its future meal ticket. Berlin Börse’s strategic position looked good enough for the $10 billion hedge fund Citadel to take an ownership stake a few weeks ago in the Equiduct system, leaving Berlin Börse with a diluted holding but still in place to operate it.

The investment by Citadel brings with it the big fund’s resources and credibility as a market maker and liquidity provider. Bringing such liquidity means that if investors want to buy or sell stocks using Equiduct pricing and its trading platform, they are assured of finding a trading partner. Citadel’s partnership with Berlin should reassure market participants that they will be able to trade in volume, should they so desire in the names listed on the exchange. This confidence is a critical factor in the success of any marketplace.

The firm is now, in effect, a very old start-up. What Equiduct does now is monitor the price quotes on a set of 860 listed names – blue chips like Siemens or SAP. Before recent regulatory changes in Europe, a stock like Siemens was traded in one defined venue. Now, Siemens securities are traded on many platforms: places like Chi-X, Nasdaq OMX and many other places. The price varies from venue to venue – in tiny amounts, tenths of cents, but still enough to make a difference to someone who is placing a large order.

Equiduct continually monitors the stocks it lists across all these venues and calculates an average and shows the best price from this data. If you as an investor deal with a bank in Germany or broker in the UK who is a member of the Börse Berlin, you can trade at this price. If you subscribe to the market data service, you can follow this data in real time on a big moving graph that looks like a spider.

Fischer walks out into the lobby of his Fasanenstrasse exchange and demonstrates. Though this Nicholas Grimshaw-designed building is the headquarters, most of the software factory running it resides in London, and there are no yelling traders. Fischer looks over an oversize monitor and calls up SAP from the 14th of July at 3 pm, when the markets are just opening in New York. He points to a block trade of 2,407 shares that went through at €29 – for €69,803 plus costs. Across the screen trading in another venue at the very same time, SAP went for €50 cheaper. Not much, considering, unless you do this every few minutes, or you’re uncomfortable telling your client you wasted his 50 clams because you didn’t look hard enough.

So, could Berlin wind up on Oliver Stone’s radar as the next den of hard and heavy financial dealing? The Börse has many challenges pressing against it. Traders are creatures of habit: a real liquid market like the one in Frankfurt moved on order of 97 percent of German equities last month, 92 percent of foreign stocks, adding up to 13 million transactions. That kind of traffic is sticky: traders go there because that’s where the action is, and they stay there.

But places like Berlin are giving rise to new kinds of exchanges and new decentralised, networked ways to do business. A big fund like Citadel has its own reasons for doing business with the Börse – its ownership stake in Equiduct is valuable – and many other large financial houses are launching new hubs and networks, propelled by ubiquitous broadband and a drive to exploit new niches in an unsettled environment. So, asks Fischer, why not Berlin?

“You can be anywhere,” he says, pointing to a company called International Algorithmic Trading, a young firm with 12 employees specialising in complex automated trading.

It’s based on the outskirts of Hamburg. Fischer’s regulator is in Berlin, his systems are in London, clients in London and Paris. He mentions the BATS exchange, only four years old and now the third-largest equity exchange in the world. It’s based in Kansas City.

“So why do you have to be in an expensive place?” he asks. “From Berlin, you can be anywhere in Europe in two hours. It’s truly international.”

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EXPLAINED: Berlin’s latest Covid rules

In response to rapidly rising Covid-19 infection rates, the Berlin Senate has introduced stricter rules, which came into force on Saturday, November 27th. Here's what you need to know.

A sign in front of a waxing studio in Berlin indicates the rule of the 2G system
A sign in front of a waxing studio indicates the rule of the 2G system with access only for fully vaccinated people and those who can show proof of recovery from Covid-19 as restrictions tighten in Berlin. STEFANIE LOOS / AFP

The Senate agreed on the tougher restrictions on Tuesday, November 23rd with the goal of reducing contacts and mobility, according to State Secretary of Health Martin Matz (SPD).

He explained after the meeting that these measures should slow the increase in Covid-19 infection rates, which was important as “the situation had, unfortunately, deteriorated over the past weeks”, according to media reports.

READ ALSO: Tougher Covid measures needed to stop 100,000 more deaths, warns top German virologist

Essentially, the new rules exclude from much of public life anyone who cannot show proof of vaccination or recovery from Covid-19. You’ll find more details of how different sectors are affected below.

If you haven’t been vaccinated or recovered (2G – geimpft (vaccinated) or genesen (recovered)) from Covid-19, then you can only go into shops for essential supplies, i.e. food shopping in supermarkets or to drugstores and pharmacies.

Many – but not all – of the rules for shopping are the same as those passed in the neighbouring state of Brandenburg in order to avoid promoting ‘shopping tourism’ with different restrictions in different states.

2G applies here, too, as well as the requirement to wear a mask with most places now no longer accepting a negative test for entry. Only minors are exempt from this requirement.

Sport, culture, clubs
Indoor sports halls will off-limits to anyone who hasn’t  been vaccinated or can’t show proof of recovery from Covid-19. 2G is also in force for cultural events, such as plays and concerts, where there’s also a requirement to wear a mask. 

In places where mask-wearing isn’t possible, such as dance clubs, then a negative test and social distancing are required (capacity is capped at 50 percent of the maximum).

Restaurants, bars, pubs (indoors)
You have to wear a mask in all of these places when you come in, leave or move around. You can only take your mask off while you’re sat down. 2G rules also apply here.

Hotels and other types of accommodation 
Restrictions are tougher here, too, with 2G now in force. This means that unvaccinated people can no longer get a room, even if they have a negative test.

For close-contact services, such as hairdressers and beauticians, it’s up to the service providers themselves to decide whether they require customers to wear masks or a negative test.

Football matches and other large-scale events
Rules have changed here, too. From December 1st, capacity will be limited to 5,000 people plus 50 percent of the total potential stadium or arena capacity. And only those who’ve been vaccinated or have recovered from Covid-19 will be allowed in. Masks are also compulsory.

For the Olympic Stadium, this means capacity will be capped at 42,000 spectators and 16,000 for the Alte Försterei stadium. 

3G rules – ie vaccinated, recovered or a negative test – still apply on the U-Bahn, S-Bahn, trams and buses in Berlin. It was not possible to tighten restrictions, Matz said, as the regulations were issued at national level.

According to the German Act on the Prevention and Control of Infectious Diseases, people have to wear a surgical mask or an FFP2 mask  on public transport.

Christmas markets
The Senate currently has no plans to cancel the capital’s Christmas markets, some of which have been open since Monday. 

According to Matz, 2G rules apply and wearing a mask is compulsory.

Schools and day-care
Pupils will still have to take Covid tests three times a week and, in classes where there are at least two children who test positive in the rapid antigen tests, then tests should be carried out daily for a week.  

Unlike in Brandenburg, there are currently no plans to move away from face-to-face teaching. The child-friendly ‘lollipop’ Covid tests will be made compulsory in day-care centres and parents will be required to confirm that the tests have been carried out. Day-care staff have to document the results.

What about vaccination centres?
Berlin wants to expand these and set up new ones, according to Matz. A new vaccination centre should open in the Ring centre at the end of the week and 50 soldiers from the German army have been helping at the vaccination centre at the Exhibition Centre each day since last week.

The capacity in the new vaccination centre in the Lindencenter in Lichtenberg is expected to be doubled. There are also additional vaccination appointments so that people can get their jabs more quickly. Currently, all appointments are fully booked well into the new year.