In a last effort to stay competitive, Euronext Liffe has cut transaction fees for clients and liquidity providers. A textbook example of too little, too late. It’s difficult not to be cynical.

On the other hand, after all these years running a business as a true monopolist it’s a giant leap for Euronext. It’s way too late to stop TOM from launching their derivatives exchange. The cut won’t make a difference, but at least they are doing something. Maybe discount brokers such as mijnbroker.nl will adjust their option fees immediately. What Euronext should have been doing is lowering the fees a lot more agressive for options with low premiums. That would possibly ignite trading in the weekly options or in small out of the money strikes.

Clients will pay 40 cent instead of 75 cent. The clearing fees aren’t included in this price. Liquidity providers with a quoting obligation (pmm and cmm) will pay 5 cent in equity options, down from 7 cents. Index options stay unchanged. This doesn’t mean the total transaction costs at the market makers will be lowered with 29%. First of all, options with premiums under 50 cent were charged 5 cent before. Second, the Central Counterparty Clearing (CCC) needs to be paid as well as the Clearing bank.

New prices will be effective from December 1st.

Update

Didn’t pay enough attention to the details of the press release. As people pointed out, the exchange has been raising prices too. Professional block trades between traders are getting more expensive. Smaller market makers not acting as liquidity provider got hit by the removal of the “preferential class” fee. Their fees will be doubled. You can raise some prices when selling a superior product. Transaction prices are more like a commodity. The quality of Euronext Liffe markets is mediocre at best.

TOM will push forward with low prof trade fees to attract market participants, and hit Euronext where it hurts. Euronext will scramble to cut more prices, and looking for other fields to raise fees – only to discover their former monopolist margins are history in a price war.

Source (pdf)

Jack
Jack