Changing Trends and Threat to Market Share Prompts London Stock Exchange to Adjust Tariffs

Seen by many as a direct response to threats by new investment bank backed trading platforms such as Chi-X and Turquoise, the London Stock Exchange revealed its plan to cut trading tariffs, while at the same time extending credit to traders for big deals which provide liquidity. Indicating that the threat of competition from these new platforms is a reality, Chi-X recently claimed to have cornered more than 15 percent of trading in FTSE 100 stocks – the index which lists the 100 top UK blue chip companies and is widely used as an investment indicator. The new tariffs will come into effect on 1 September, just prior to the official launch of Turquoise, fueling the notion that the LSE tariffs reduction is related to the threat of competition, despite the fact that the LSE claims the move is a preemptive response to changing trends and maintaining market share.

The LSE is confident that it will prove to be the cheapest trading platform in Europe for large users, which holds true for those trading significant volumes both ways. Based on first-quarter volumes, the fee reductions will cost the LSE an estimated £5 million per quarter to implement, which it expects to recoup in higher trading volumes.

Some key elements of the new tariff structure for all securities include the removal of the 7.5 pence execution charge and the one pence order management charge, as well as the removal of the maximum per trade charge and the implementation of free off book trade reporting applicable to registered market makers in supported securities. Tariff rulings relating to liquidity for smaller company securities include a fixed credit rate to registered market makers for providing liquidity and a simplified discounted charge for removing liquidity. The introduction of a tiered credit scheme relating to liquidity provision will be applied to FTSE 350, IOB and other liquid securities, and will be based on the value traded by a client within each month.

It is anticipated that the new London Stock Exchange tariffs will stimulate new and additional business through delivering significant rewards and incentives for trading firms. Tariff adjustments have historically resulted in a notable growth in trading, and there is every reason to believe that the upcoming tariff adjustments will have a similar outcome.