The adoption of uniform tick sizes by trading venues across Europe would help multilateral trading facilities to compete more effectively, according to BATS Europe, a pan-European multilateral trading facility.
The firm argues that uniform tick sizes, along with clearing interoperability and common stock symbology, will ease smart order routers’ search for the best price and liquidity.
“The three frictional structural costs for a smart order router (SOR) are tick sizes, symbology and clearing,” Paul O’Donnell, COO, BATS Europe, told theTRADEnews.com. “An SOR needs to identify the different symbols for each venue, which tick band and the smarter routers try to figure out the impact of clearing costs on overall execution. Standards in these three areas will mean SORs will route depending on who has the best price and most 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.
Each primary exchange in Europe uses varying tick size bands depending on the liquidity profile of a stock. In most cases, tick sizes on MTFs mirror those of the relevant primary exchange, which means an MTF may need to accommodate up to 30 different tick size regimes, depending on its pan-European reach.
Once the MTFs had developed the initial proposal, they took it to the London Investment Banking Association, and subsequently invited the London Stock Exchange, NYSE Euronext and Deutsche Börse to join the initiative.
The group’s proposal is now with the Federation of European Stock Exchanges, which has asked its members, comprising representatives of 42 securities exchanges across Europe, for feedback.
BATS Europe and its fellow MTFs have also collaborated on introducing uniform stock symbology and clearing interoperability.