Round Lot One
Member consultation
2008-01-23
Table of contents
1.
2.
3.
4.
5.
Introduction............................................................................................................. 3
Background.............................................................................................................. 3
Current NOREX Environment .................................................................................... 3
International practice .............................................................................................. 4
Experiences from implementing round lot one.......................................................... 4
5.1 OMX Nordic Exchange Helsinki ................................................................................. 4
5.2 Deutsche Börse...................................................................................................... 5
5.3 Implications in general from changing the round lot size .............................................. 5
5.3.1 Ratio trades/executed order ................................................................................................ 6
5.3.2 Transaction fees................................................................................................................. 7
5.3.3 Updating last paid .............................................................................................................. 7
6. Conclusions.............................................................................................................. 8
7. OMX and Oslo Børs proposal..................................................................................... 8
8. Feedback and response to this paper........................................................................ 8
Questionnaire: ............................................................................................................10
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1. Introduction
OMX Nordic Exchange and Oslo Børs have, over a number of years, been striving towards
stronger and more vibrant capital markets in line with the industry’s best practice. A much
discussed topic has been the round lot sizes on the NOREX exchanges in Stockholm, Helsinki,
Copenhagen, Iceland and Oslo.
OMX Nordic Exchange and Oslo Børs would like to collect member feedback regarding the topic of
round lot sizes, and hereby invite all cash equity members to share their opinion with us through
this consultation paper.
2. Background
In December 2005 OMX Nordic Exchange and Oslo Børs asked the cash market members’ point
of view on round lot sizes. Based on the results of that consultation, OMX Nordic Exchange in
September 2006 decided to implement round lot size one on OMX Nordic Exchange Helsinki for
all equities, warrants, fund units (ETFs) and equity rights. This meant that the odd lot order book
ceased to exist.
The results from the implementation of round lot one (RL1) in OMX Nordic Exchange Helsinki
have been very encouraging and give us reason to believe that the decision was good for
member companies, end investors and issuers.
3. Current NOREX Environment
Today trading in the NOREX markets, except OMX Nordic Exchange Helsinki, is split into the
round lot order book and the odd lot order book. Orders larger than a certain limit are executed
in round lot order book whereas small orders are executed in the odd lot order book. There is
some variation of the limit value in each NOREX exchange.
The current round lot regime in each NOREX exchange is briefly described in the table below:
TABLE 1: Summary of round lot sizes in NOREX exchanges
Exchange
Target lot
Accepted lot sizes
value
OMX Nordic Exchange Copenhagen
10 000 DKK or
1, 5, 10, 25, 50, 100, 200, 500, 1000,
20 000 DKK
1500, 2000 and 5000
OMX Nordic Exchange Helsinki
N/A
1
OMX Nordic Exchange Stockholm
10 000 SEK or
10, 25, 50, 100, 200, 400, 500, 1000,
20 000 SEK
2000, 5000 and 10000
Oslo Børs
10 000 NOK
1, 2, 5, 10, 20, 50, 100, 200, 500, 1000, 2000,
OMX Nordic Exchange Iceland
50 000 ISK or
1, 2, 5, 10, 20, 25, 50, 100,, 200, 250,
100 000 ISK
1000, 2000, 2500, 5000 and 10000
5000 and 10000
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4. International practice
The largest exchanges in Europe have round lot one today. Euronext introduced round lot one
simultaneously with the new Cash Market Trading System in October 2000. London Stock
Exchange has always used lot size one and Deutsche Börse introduced round lot one in August
2002.
TABLE 2. Lot sizes, international practice
Exchange
Round lot size
London Stock Exchange – SETS
One
Deutsche Börse – XETRA
One
Euronext
One
Nasdaq
100 shares
New York Stock Exchange - NYSE
100 shares
(Source: The various exchanges' homepages)
5. Experiences from implementing round lot one
5.1 OMX Nordic Exchange Helsinki
OMX Nordic Exchange made an analysis of the effect of round lot one at the Helsinki equity
market by comparing factual figures 20 trading days pre and post the implementation. The
choice of methodology, with a relatively short number of days, was made to minimize the effects
from other factors than the round lot one itself. Since the effect deviates between the most
traded and the other stocks the results for the OMXH25 constituents were analyzed separately.
As mentioned earlier the study showed positive results. The main results were:
Trading is up
-
Both the overall turnover and the number of trades have increased significantly. Trading
in instruments outside the OMXH25 index has increased the most. Turnover increased for
OMXH25 and other shares, 10% and 66% respectively. Whereas the number of trades
increased by 14% and 52% respectively. The share of automatically matched trading
(order book trading) has increased even more than the total trading (order book trading
and off-order book trading together).
Strengthened price competition
-
Buyers and sellers are closer. The relative spreads have narrowed for OMXH25 and other
shares, by 4% and 50% respectively. Furthermore, the use of minimum tick size, where
the prices can’t get sharper, has increased.
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-
Increased number of orders and enlarged order depth. The number of orders inserted
into the system has increased by up to one third for OMXH25 and other shares, 31% and
21% respectively. This is also reflected in the order depth, both at the inner spread and
at the entire order book. The value of orders in the entire order book increased for
OMXH25 and other shares, by 21% and 96% respectively. The number of orders in the
entire order book increased for OMXH25 and other shares, by 17% and 50% respectively.
At the inner spread the value of orders increased for OMXH25 and other shares, by 2%
and 59% respectively. Whereas, the number of orders at the inner spread increased for
OMXH25 and other shares, 4% and 3% respectively.
-
Order sizes have increased for all shares except the OMXH25 shares, where at the inner
spread, the average order size decreased by 2%. This is reflected in smaller average
trade sizes for OMXH25 constituents: decrease in total trading and automatically matched
trading, -4% and -1% respectively. Average trade sizes have increased in shares other
than the OMXH25 index total trading and automatically matched trading, by 10% and 4%
respectively.
-
The trades per executed order ratio decreased in average by 1 % on OMXH25 shares and
increased by 7% in other shares. However, the turnover weighted ratio, where the illiquid
shares have less impact, showed different results. Turnover weighted trades per
executed order ratio decreased for OMXH25 and other shares, by 1% and 2%
respectively.
In summary, we can see that the concerns about orders splitting into more trades due to
implementation of round lot one, has not materialized as might have been expected. Furthermore
we have seen a very positive increase in liquidity and a narrowing of spreads.
5.2 Deutsche Börse
Deutsche Börse first changed the round lot size to one in the MDAX market in March 2002. Later
that year in August they published the following results from the change1:
-
-
Price spreads shrank from 0.71 percent to 0.63 percent on average.
The liquidity measure was improved for stocks with high, medium and low turnover2
The share of “uneven” – i.e. not divisible by 100 – orders rose considerably.
Deutsche Börse also announced that since the effect of round lot one had been positive in the
MDAX market this was applied to all DAX stocks from August 2002.
5.3 Implications in general from changing the round lot size
The objective of OMX Nordic Exchange and Oslo Børs is to integrate the Nordic markets and align
their market structure to the industry’s best practice. A natural step would therefore be to
continue the harmonization of round lot size on OMX Nordic Exchanges in Stockholm,
Copenhagen and Iceland as well as on Oslo Børs. The ultimate target being naturally to ensure
the best liquidity possible for market participants on our markets.
1
Source: Deutsche Börse web site.
2
Deutsche Börse evaluated the liquidity by measuring the round trip costs (costs of buying and selling a
position worth of a specific value).
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However, there are a few issues that need to be taken into account when considering an
introduction of round lot one.
5.3.1 Ratio trades/executed order
Currently the number of trades executed in the odd lot order book varies between the NOREX
markets. They vary between 2,99% and 16,52% of the total number of trades, see table 4
below. If the odd lot order book would be abolished the execution of a big order might result in a
higher number of trades. For large orders this could also mean higher clearing and settlement
costs.
The 20 trading days’ pre/post study on OMX Nordic Exchange Helsinki showed that the
trades/executed order ratio for shares belonging to OMXH25 and other shares, decreased by 1%
and increased by 7% respectively. However, the volume weighted (where the illiquid shares have
less impact) trades/executed order ratio decreased for OMXH25 and other shares, by 1% and 2%
respectively. This indicates as mentioned earlier, that the concerns of orders splitting into more
trades due to round lot one probably will not be as severe as maybe expected.
As seen in table 3, the average trades/executed order ratio on OMX Nordic Exchange Helsinki
was lowest of all NOREX markets during the second half of the year 2007. This further
strengthens the arguments that orders have not been split into significantly more trades after the
implementation of round lot one.
Table 3: Average number of trades/executed order at the NOREX exchanges.
Period: H2, 20071
Exchange
Average number of
trades/executed order
OMX Nordic Exchange Copenhagen
1,77
OMX Nordic Exchange Helsinki
1,42
OMX Nordic Exchange Stockholm
1,49
Oslo Børs
1,79
OMX Nordic Exchange Iceland
1,60
Table 4: The share of odd lot trading in comparison with total trading, in number of trades.
Period: H2, 20072
Exchange
Number of odd lot trades/
number of total trades
OMX Nordic Exchange Copenhagen
6,84%
OMX Nordic Exchange Stockholm
9,68%
Oslo Børs
2,99%
OMX Nordic Exchange Iceland
16,52%
OMX Nordic Exchange Helsinki
2,67%
1
On OMX Nordic Exchanges (not on Oslo Børs) each fill against the visible amount in hidden orders will be
counted as a new executed order.
2
The period for OMX Helsinki is H1, 2005.
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Table 5: The share of odd lot trading in comparison with total trading, in turnover.
Period: H2, 2007
Exchange
Turnover of odd lot trades/
turnover of total trades
OMX Nordic Exchange Copenhagen
0,42%
OMX Nordic Exchange Stockholm
0,41%
Oslo Børs
0,05%
OMX Nordic Exchange Iceland
0,04%
5.3.2 Transaction fees
It is important to highlight that OMX Nordic Exchanges in Copenhagen and Stockholm changed
their invoicing from January 1, 2008. The transaction based fee is now charged per executed
order (not per trade). This was also done on OMX Nordic Exchange Helsinki before the
implementation of round lot one.
This means that in terms of Exchange fees the question on how many trades a given order will be
split into is no longer relevant at OMX Nordic Exchanges in Copenhagen and Stockholm
Oslo Børs and OMX Nordic Exchange Iceland still have transaction fees charged per trade.
5.3.3 Updating last paid
If round lot one is implemented, the smallest volume of instrument units that can create a new
latest paid price would then also be one share. On OMX Nordic Exchange Helsinki the
implementation of round lot one has not caused significant market manipulation problems and
hence OMX Nordic Exchange and Oslo Børs are confident of market reliability also after the
implementation of round lot one. Round lot size and thresholds for updating latest paid are linked
together in SAXESS system.
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6. Conclusions
Round lot one will give individual investors improved access to trading, compared to being
restricted to the odd lot order book. Furthermore, executing trades in a desired amount of
EUR/SEK/DKK/ISK/NOK becomes easier.
Results from the survey made at OMX Nordic Exchange Helsinki show that the implementation of
round lot one is likely to increase both turnover and liquidity in the order book and also make the
relative spreads narrower. Another finding was that the volume weighted trades/executed order
ratio decreased. Hence, the expected increase in clearing and settlement costs might in fact be
lower or have no consequence at all. As OMX Nordic Exchange Stockholm and Copenhagen now
have changed their fee structure per executed order, the concern of increased exchange fees due
to round lot one is not relevant on these two markets.
OMX Nordic Exchange and Oslo Børs strongly believe that implementing the round lot one would
make the Nordic market more efficient.
7. OMX and Oslo Børs proposal
OMX Nordic Exchange and Oslo Børs aim to further harmonize the Nordic markets and propose
that round lot size one is implemented at Oslo Børs, OMX Nordic Exchange Copenhagen, OMX
Nordic Exchange Stockholm and OMX Nordic Exchange Iceland. This would be applied to the
following submarkets: Equities, Warrants, Fund units and Equity rights. Please note that on OMX
Nordic Exchange Stockholm submarket Exchange Traded Funds (ETF) round lot one has already
been implemented, from January 2008.
8. Feedback and response to this paper
To be able to compile all answers in an efficient way we would appreciate if you use the
questionnaire at the end of this document. Please note that we are interested in receiving
the member-firms’ collective view rather than a specific person’s view. The answers will
be presented in an aggregate form, where we will also weigh the answers in different tiers. Our
aim is to be able to present the result of the survey in March 2008.
This survey will serve as guidance for OMX and Oslo Børs and be an important part of the base
for decision although OMX Nordic Exchange and Oslo Børs will make the final decision.
We need your response to this consultation paper no later than February 12, 2008. If you
have any questions or want to set up a meeting to discuss this topic with the exchange please do
not hesitate to contact your account manager at OMX Nordic Exchange or Oslo Børs:
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Stockholm
Stefan Pinter
Stefan.pinter@omxgroup.com
+46 8 405 6459
London
Henrik Reinfeldt
Henrik.reinfeldt@omxgroup.com
+44 (0) 20 7065 8149
Mattias Hammarqvist
Mattias.hammarqvist@omxgroup.com
+46 8 405 6930
Jyrki Ikonen
Jyrki.ikonen@omxgroup.com
+44 (0) 20 7065 8148
Karin Grefberg
Karin.grefberg@omxgroup.com
+46 8 405 6283
Ilkka Ottoila
Ilkka.ottoila@omxgroup.com
+44 (0) 20 7065 8147
Helsinki
Kristian Wikman
Kristian.wikman@omxgroup.com
+358 9 6166 7769
Oslo
Annar Schiander
Head of Member Relations
as@oslobors.no
+47 22 34 17 26
Markus Kilkki
Markus.kilkki@omxgroup.com
+358 9 6166 7751
Riikka Leppänen
Riikka.leppanen@omxgroup.com
+358 9 6166 7240
Copenhagen
Allan Hvalsoe - Olsen
Allan.olsen@omxgroup.com
+45 33 77 03 83
Vegard S. Annweiler
Head of Equities
va@oslobors.no
+47 22 34 17 93
Iceland
Magnus Hardarson
Head of Trading
magnus.hardarson@omxgroup.com
+354 525 2853
Henning Kruse
Henning.kruse@omxgroup.com
+45 33 77 03 81
Yours sincerely,
OMX, the Nordic Exchange and Oslo Børs
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Questionnaire:
Member:
Contact person:
Contact details:
Please answer the questions regarding the market you are member of:
OMX Nordic Exchange Stockholm
Proposal: Implement round lot one
Alternative: Keep the current set-up (odd lot order book)
OMX Nordic Exchange Copenhagen
Proposal: Implement round lot one
Alternative: Keep the current set-up (odd lot order book)
OMX Nordic Exchange Iceland
Proposal: Implement round lot one
Alternative: Keep the current set-up (odd lot order book)
Oslo Børs
Proposal: Implement round lot one
Alternative: Keep the current set-up (odd lot order book)
Yes, my firm’s views can be made public.
Are there any other comments or aspects you want to disclose to OMX and Oslo Børs in this matter?
Please send your answer to:
OMX, the Nordic Exchange and Oslo Børs
equity.members@omxgroup.com
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