The London Stock Exchange (LSE) will make trading free for firms adding a large amount of liquidity in the UK’s most liquid stocks from 4 May.
The change is one of two new schemes the exchange is introducing for firms that trade large volumes on its order book.
The LSE will waive trading fees for passive executions qualifying under its new liquidity provider scheme for FTSE 350 securities. Until 30 June 2010, firms can apply to include up to two ‘trader groups’ to be included in the scheme. Any passive flow submitted by these groups must be solely generated from the firm’s own capital with no client related orders. To qualify for free trading in a given calendar month, passive continuous trading execution by value must exceed 75% of all continuous execution by value in FTSE 350 securities for an individual nominated trader group.
The second scheme, the high-volume liquidity taker scheme, charges traders 0.29 basis points for aggressive executions. Until 30 July 2010, the tariff will apply to all qualifying continuous trading executions in equity and international order book (IOB) securities (excluding exchange-traded funds, commodities and products, covered warrants and orders executed on the exchange’s retail bond market).
To qualify, a firm must have executed more than £3.5 billion aggressively in continuous trading in equities or IOB securities in at least one of the calendar months from January to July 2010 inclusive. While hidden orders are excluded from the scheme, any part of an iceberg order that executes immediately on entry to the order book will be included.
The new schemes are in addition to the LSE’s standard tiered fee schedule, which remains unchanged. The schedule charges an equal fee for both passive and aggressive executions. Traders are charged 0.45 bps for the first £2.5 billion traded per month, 0.40 bps for the next £2.5 billion, 0.30 bps for the next £5 billion and 0.20 bps for all subsequent value traded.
The LSE had previously attempted to attract large volumes from high-frequency firms via maker-taker pricing, but this experiment was abandoned by CEO Xavier Rolet last year.