The Financial Times reported yesterday that the London Stock Exchange (LSE) is set to cut trading costs on seven FTSE-100 stocks, including Vodafone, ITV and Legal & General.
If the report is confirmed, it is likely to further undermine the profitability of equity brokerage firms executing trades in the most liquid stocks.
The newspaper reported that the exchange plans to effectively lower the spread between the prices that brokers quote for buying and selling the shares by lowering the “tick” size for stocks that trade between 10p and 199p from 0.25p to 0.1p.
Similar concerns were raised in 2000-01 when the New York Stock Exchange (NYSE) decimalised
trading stocks in one-cent increments, rather than in sixteenths. It did cuts spreads. When the brokers survived, the emphasis shifted to trading of stock options in penny, rather than five-cent, increments.
“One client asked if I was disappointed by the news,” notes Alasdair Haynes, CEO, ITG. “I told him that this is actually very good for our business. When the NYSE went to pennies, POSIT (ITG’s equity matching platform) grew,” he adds.