The introduction of the high-speed INET trading platform at exchange group Nasdaq OMX’s Nordic exchanges next Monday, coupled with the introduction of central counterparty (CCP) clearing and tick-size harmonisation last October, could significantly boost trading turnover, said Hans-Ole Jochumsen, president of Nasdaq OMX Nordic.
This will in turn cut trading costs as more customers become eligible for the turnover-based fee caps the group introduced in January.
“If everything goes as it should, we could see 25% volume growth this year,” Jochumsen told a press conference on Thursday. “This will result in further reduction of our average trading fees by 20%.”
He added however, that the volume increase would be gradual as brokers’ smart order routers are updated to take account of the more attractive execution metrics on the exchange.
Nasdaq OMX will simultaneously shift its seven Nordic and Baltic exchanges to INET on 8 February. The group operates the Stockholm, Copenhagen and Helsinki stock exchanges in the Nordic region and Reykjavik, Riga, Tallinn and Vilnius stock exchanges in the Baltic States.
The shift to INET, which is already in place on Nasdaq OMX’s US exchanges and the pan-European multilateral trading facility Nasdaq OMX Europe, will cut the exchanges’ peak latency to 250 microseconds from the 2.5 milliseconds possible through its current SAXESS system. This compares with 40-50 milliseconds at the beginning of 2008.
The addition of the CCP for the Nordic region on 9 October last year, operated by pan-European clearer EMCF, said Jochumsen, had shaved 70-80% from total trading costs on Nasdaq OMX’s Nordic exchanges, as banks had previously been relying on more expensive bilateral trading arrangements that lacked netting functions.
This had proved particularly attractive to London-based traders, who, thanks to the high-trading costs, had been using alternative London-based platforms such as Chi-X Europe to trade Nordic stocks, according to Jochumsen. Remote members’ market share has risen from less than 35% before the CCP launch to 40% by the end of 2009.
The adoption of the FESE table II tick sizes on 26 October 2009 for stocks in Sweden’s OMXS30 large-cap index halved spreads from around 20 basis points to around 10 bps, according to Nasdaq OMX data. It also boosted Nasdaq OMX Stockholm’s time at the European best bid and offer in OMXS30 stocks to around 80% from between 30% and 40%, while simultaneously cutting Chi-X Europe’s time at the best bid and offer to around 60% from around 80%.
“The introduction of the CCP and the new tick sizes allowed us to compete on the fact that we have liquidity,” said Jochumsen.
According to figures from data vendor Thomson Reuters quoted by Nordic MTF Burgundy, 31.42 % of Swedish equity trading was conducted away from Nasdaq OMX Nordic in January 2010, up from 28.65% in December 2009. The numbers include trades reported to venues in addition to the executions on their platforms.