In a move that could see them capture additional market share from incumbent exchanges, two multilateral trading facilities (MTF) are this week stepping up their efforts to adopt standardised tick sizes across European trading venues.
Broker-owned MTF Turquoise will introduce more granular tick sizes for four UK (BT Group, Old Mutual, Legal & General and Friends Provident) and five Italian stocks (ENEL, Telecom Italia, Fiat, Finmeccanica and Snam Rete Gas).
New tick sizes were implemented last week by Turquoise for FTSE 100 constituents Barclays, BP, Lloyds, Royal Bank of Scotland and Xstrata.
Turquoise CEO Eli Lederman said the smaller spreads resulting from the new tick sizes had already delivered “real benefits in terms of significant price improvement and increased trade size relative to their trading prior to the tick change”.
The move mirrors similar changes from rival MTF BATS Europe, which today also rolled out of a new tick scheme for 10 FTSE 100 constituents and five S&P/MIB constituents, along with all Swedish, Danish and Norwegian stocks.
The two platforms will implement the Federation of European Stock Exchanges’ (FESE) ‘table one’ tick size bands for the selected stocks. Under the new regime adopted by Turquoise and BATS, selected bands include a 0.0005 tick size for stocks priced between €1 and €4.9995, €0.01 for stocks priced between €50 and €99.99 and 5.0000 for stocks priced between €10,000 and €99,995.
Because the London Stock Exchange, along with a number of other exchanges, uses larger tick sizes based on FESE table two, the MTFs may be able to attract more flow from smart order routers calibrated to react to the smallest incremental price movements.
Both Turquoise and BATS have expressed their frustration at the lack of industry wide progress in harmonising tick sizes across the continent.
“While we hope that this process concludes rapidly, we share the disappointment of many of our members that it has taken so long,” wrote Lederman, in a notice sent to the MTF’s members. “In any event, we believe that analysis of our experiments will inform the process and will lead to more rational tick sizes that can, ultimately, be adopted by platforms uniformly.”
BATS Europe COO Paul O’Donnell recently told theTRADEnews.com that standardising tick sizes, along with clearing interoperability and use of common stock symbology, will ease smart order routers’ search for the best price and liquidity.
Shortly after its launch on 31 October, BATS Europe teamed up with fellow MTFs Chi-X Europe, Turquoise and Nasdaq OMX Europe to develop an initial proposal for uniform tick sizes with the intention of reducing the frictional costs of trading. This proposal was presented to the London Investment Banking Association, who subsequently invited the London Stock Exchange, NYSE Euronext and Deutsche Börse to join the initiative. The group’s proposal is now with FESE, which has asked its members, comprising representatives of 42 securities exchanges across Europe, for feedback.