Fooling retail investors with new tick size

23 May 2009
Euronext is finally ready to introduce the one-cent tick size in the Amsterdam stock options market. This Premium Based Tick Size plan has been postponed for a while, the crisis curbed their enthusiasm in November 2008. Seven months later the united market maker lobby has achieved some success as well. The threshold has been set on 20 cent instead of 30 cent.

Premium based tick size means the options with values below EUR 0.20 can be traded on screen with a tick size of one cent. The market could quote 0.06 – 0.07. Above the value of 20 cent the tick size remains five cent (say 0.25 – 0.30).

Quite straightforward stuff. However, with the strategy orders the 1 cent tick size is slowly creeping into the rest of the territory. As long as the value of the strategy (like a butterfly) is below the 20 cent threshold the 1 cent tick size applies. And what happens if an option with the value of 5 euro is combined with a 10 cent option in a strategy? The implied leg price shows up in the screen. Rival exchange Eurex has one cent tick sizes as long as everyone can remember. The bottleneck for Euronext used to be the heavy used capacity restrains imposed by the obligation to quote all series for pmm’s.

Retail investors fooled by Euronext
Everyone has got to make a living and there’s nothing wrong with running a profitable business. The whole idea behind the premium based tick size is of course the boost of traded volume and revenue for the exchange. NYSE-Liffe director Jonathan Seymour (who has no friends) is heralding his efforts to serve the interests of the retail customers. Very kind of mister Seymour to make the far out-of-the-money crap tradable and give a cent better execution. However, the exchange is fooling the customers. Introduce some Premium Based Transaction Fees instead of bragging about the interest in retail clients. With the current high level of transaction fees for retail traders they should stay out of the little options as long as it cost them five cent for a round trip. Even if your name is Nassim Nicholas Taleb, avoid trading the far otm options with retail brokerage fees.

4 Responses to Fooling retail investors with new tick size

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jon's wannabe friend but he didn't accept me

May 23rd, 2009 at 11:22 pm

first post! hahahahaha! jonathan seymour has no friends! how sad for him.

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Anonymous

June 3rd, 2009 at 6:24 am

A touch more trading in the Out of the moneys…like OCE, Super de Boer, Logica….not sure if the 0.20 limit is enough…why did Euronext set the limit to 0.30 or even higher….1 Euro? capacity problems?????

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Anonymous

June 8th, 2009 at 8:54 pm

Quite strange that Clearnet used this occassion to increase the clearnet fees for preferential classes. Since the 1ct tick size was introduced market makers pay 7+5=12ct (was 7+3=10ct) per option contract for preferential classes. CMMs or PMMs still pay 10ct. Has there been a notice about this 20% price increase for market makers ? What will be the next step ?

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One cent tick size at Euronext Liffe - amsterdamtrader

February 28th, 2012 at 11:12 pm

[...] said it before, and will say it again. The transaction fees are too high. For investors and in lesser extent for [...]

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