Euronext announced today to slash the tick size in stock options, of which the underlying shares are components of the AEX index. Options with a premium lower than 5 euro will be traded in increments of 1 cent.

This means a whole new battlefield with new trading tactics. After ten years of talking, the new tick size adjustment will come into effect on March 8th. That’s a regular thursday, a little more than a week from now.

The reason for this unusual speed of action from the exchange is the new competitor TOM. The contender will start with one cent tick size. The new liquidity providers who have committed themselves to the quoting obligations for the next twelve months didn’t have a say in this.

As a goody for the market makers the quote size in all those option classes will be reduced to 10 lots. That’s weird. Nobody would want to quote for 10 lots, and the depth of the market wouldn’t benefit from this adjustment. Apparently Euronext Liffe isn’t too confident about their own systems. A tick size of one cent means massive price updates. Means technical problems. Like we’ve seen before. The message is clear. Quote for baby size, you won’t get hurt when we screw up.

Wrong decision

I’ve said it before, and will say it again. The transaction fees are too high. For investors and in lesser extent for market makers, the fees are outrageous. Nobody will benefit from a cent better execution, when transaction fees eat your profits.

Jack