Best price guarantee
Currently, the retail orders from brokers Binck and Alex will always be executed on TOM. They have a “best price guarantee” – when the price on Euronext is better, the retail client gets execution on TOM against Euronext’s prices.
The trade itself is executed on Euronext, but moved to TOM thanks to market makers who are willing to take these positions on their books. They won’t really notice, apart from building up long/short positions in certain strikes on Euronext/TOM. This volume is executed on both TOM and Euronext. They call this “STAT” trades.
In a few weeks TOM will tweak this model. Market makers can opt-out for the hedge on Euronext. When client order comes in and the price on Euronext is better, it will be executed on TOM and randomly given to market makers who participate in this schedule.
Basically, market makers suddenly don’t have to quote anymore – they will do trades on other people’s quotes anyway. And this flow will never reach Euronext again. In the beginning of May this schedule will start with DSM.
As shareholder in TOM, the state owned bank ABN AMRO will finally connect to the exchange in a few months. Clients will be connected to the Smart Order Routing (SOR) – in contrast to Interactive Brokers. Another bank lined up for TOM is BNP.
No lower fees
The retail investor doesn’t benefit at all from the competition between TOM and Euronext. Fees aren’t lowered, nothing to choose. Partly because the brokers will just pocket the lower fees at TOM.