Since March 2009, FESE has been in negotiations with LIBA and some MTFs (BATS, Chi-x, NASDAQ Europe and Turquoise) to harmonise the tick size regimes in Europe (which did stand at approximately 25 across the EU) in the interest of achieving benefits to the markets, users and investors by simplifying the complexity and number of regimes in place.
From the perspective of each trading venue, strong incentives exist to undercut others in terms of tick sizes, which is not in the interest of market efficiency or the users and end investors. This might, in turn, lead to excessively reduced tick sizes in the market. Excessively granular tick sizes in securities can have a detrimental effect to market depth (i.e. to liquidity). An excessive granularity of tick sizes could lead to significantly increased costs for the many users of each exchange throughout the value chain; and have spillover costs for the derivatives exchanges’ clients.
With these considerations in mind, FESE, LIBA and the MTFs involved agreed on a number of potential tick size regimes. They also agreed that FESE would consult with the wider user base of the exchanges with differing needs and business models to understand which regime was the most appropriate. Therefore, FESE launched a Pan-European initiative in May to collect the views of market participants regarding the possibility to reduce the number of tick size regimes across EU equity markets. FESE, LIBA and the MTFs committed to wait for the results of the consultation before adopting any new regime.
Based on the results of this consultation, FESE has met with LIBA and the MTFs on 30 June to present the results and agree on an implementation timeline. FESE committed to:
- Harmonising the tick size regimes for the most liquid stocks;
- Reducing the number of regimes in place to the maximum extent possible ;
- Simplifying the bands; and
- Implementing the changes, together with the users within a range of 2 weeks to 6 months, depending on the needs of the user banks.
The commitment presented by FESE has been welcomed by LIBA and the MTFs involved in the negotiations. Chi-x, BATS Europe, Nasdaq Europe and Turquoise all committed to adopt the same tables as the domestic venues and not to make any further moves in their tick size regimes before the timetable agreed for each market.
During the same meeting, FESE, LIBA and the MTFs involved have discussed the possibility for FESE members to investigate how second-tier small and mid-cap securities could fit in a harmonized regime on the basis of the 4 tables. FESE Members agreed to analyse the feasibility of this plan and they are currently in discussions with their members.
Please click here to view the document which summarises the tables’ implementation dates by market and provides information about the harmonisation process for blue-chips and non blue-chips.
The document is updated every month.