Survey on Round Lots
2005-09-12
Table of contents
1 INTRODUCTION ........................................................................................................... 3
1.1 Feedback and response to this paper ........................................................................ 3
2 Change of the Round Lot Sizes ....................................................................................... 5
2.1 Current NOREX Environment.................................................................................... 5
2.2 Lot sizes in benchmark exchanges ............................................................................ 7
2.3 Research on round lots ........................................................................................... 7
2.4 Implications of change in the round lot size................................................................ 7
2.5 Three options ........................................................................................................ 8
2.5.1 Option A: Harmonized round lots ......................................................................................... 9
2.5.2 Option B: Introduction of lot size one ................................................................................... 9
2.5.3 Option C: Leaving the present round lot regime unchanged .................................................. 10
3 Questionnaire:............................................................................................................11
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1 INTRODUCTION
NOREX1 will continue with the harmonization processes during the coming years. Given the
substantial growth of cross border trading in recent years one of the key targets of NOREX
is also to align its rules and trading systems to the European best practices.
In the process of developing the Nordic markets we are anxious to listen to the opinions
and views of our trading members, issuers as well as investors. We would like to advance a
constructive dialogue with our stakeholders and to maintain strong and vibrant capital
markets in the Nordic area.
At this stage NOREX would like to invite its members, issuers and end investors to discuss
and express their opinion about round lot sizes.
Currently odd lot trading and round lot trading in NOREX markets have separate trading
rules. It may create a problem if the number of shares in a big order that is defined as
euro or krona amount is not divisible by the round lot size. If the remaining part is smaller
than a round lot it has to be partly executed in the odd lot order book. Traders and retail
investors may find that the functionality i.e. the algorithm that is used in matching odd-lot
orders today is quite complicated. Some market participants have suggested the reduction
of the round lot limits or introduction of round lot one.
The purpose of this consultation paper is to ask the opinion of our stakeholders regarding
the optimal round lot regime.
1.1 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 company's collective view rather than a specific person’s view. The answers will be
treated as anonymous meaning that no participant names will be published. The results will
only be presented in aggregate form. We will also weight the answers in different tiers. Our
aim is to be able to present the result of the survey at the end of October 2005.
This survey will serve as guidance for NOREX and be an important part of the decisionmaking although NOREX will make the final decision.
The NOREX Business Development Group is responsible for this project and the content of
the survey.
1
NOREX consists of the exchanges in Copenhagen, Helsinki, Oslo, Reykjavík, Stockholm, Tallinn, Riga and
Vilnius. The topics covered in this paper do not affect the Baltic exchanges since they have not amended
NOREX Member Rules yet.
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We would appreciate if you could send your answer by September 29, 2005 at the
latest. If you have any questions or want to set up a meeting to discuss these topics with
the exchange please do not hesitate to contact your account manager or any of the
following persons in NOREX exchanges:
OMX Exchanges – Helsinki Stock Exchange
Pekka Peiponen
Equities
HELSINKI
FINLAND
Tel: +358 961667290
Email: pekka.peiponen@omxgroup.com
Oslo Børs ASA
Odd Sigmund Røste
Market Activity Dept
OSLO
NORWAY
Tel: +47 22 34 17 58
Email: odd.roste@oslobors.no
OMX Exchanges - Copenhagen Stock Exchange
Bjørn Sibbern
Equities
COPENHAGEN
DENMARK
Tel: +45 3377 0380
Email: bjorn.sibbern@omxgroup.com
Iceland Stock Exchange
Svana Huld Linnet
Listing
REYKJAVIK
ICELAND
Tel: +354 525 2861
Email: svana@icex.is
OMX Exchanges – Stockholm Stock Exchange
Claes Urban Dackberg
Equities
STOCKHOLM
SWEDEN
Tel: +46 8406 6812
Email: claes.urban.dackberg@omxgroup.com
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2 Change of the Round Lot Sizes
2.1 Current NOREX Environment
Today trading in all NOREX markets is divided to round lot order book and odd lot order
book. Generally all orders that are bigger than a certain limit are executed in round lot
order book whereas small orders are executed in 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
Copenhagen Stock Exchange
(CSE)
Helsinki Stock Exchange
(HSE)
Stockholm Stock Exchange
(SSE)
Target lot
value
10 000 DKK or
20 000 DKK
1 000 EUR
10.000 SEK
20.000 SEK
Accepted lot sizes
1, 5, 10, 25, 50, 100, 200, 500, 1000,
1500, 2000, 5000 and 10000
1, 10, 20, 50, 100, 200, 500, 1000,
2000, 3000 and 5000
10, 25, 50, 100, 200, 400, 500, 1000,
2000, 5000, 10000
Oslo Bors (OB)
10.000 NOK
1, 2, 5, 10, 20, 50, 100, 200, 500, 1000,
2000, 5000, 10000
Iceland Stock Exchange
(ICEX)
50.000 ISK or
100.000 ISK
20, 100, 200, 1000, 2000, 5000 or
10000
Copenhagen Stock Exchange
Target lot value depends on whether the share is included in KFX or not. For KFX shares
the target lot value is 20 000 DKK and for others 10 000 DKK. The lot sizes are revised
semiannually in order to keep the lot values unchanged. The possible lot sizes are 1, 5, 10,
25, 50, 100, 200, 500, 1 000, 1 500, 2000, 5 000 and 10 000 shares.
The round lot and odd lot orders are integrated in the order book. However round lot
orders and odd lot orders have separate set of trading rules. Under some circumstances
round lot orders can be executed against odd lot orders.
Stockholm Stock Exchange
In Stockholm the target lot value for A-list companies is 20 000 SEK and for O-list
companies 10 000 SEK. The accepted lot sizes are 10, 25, 50, 100, 200, 400, 500, 1000,
2000, 5000 or 10 000 shares. The lot sizes are revised semiannually so that if the round
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lot value is higher than 100% or lower than 50% of the target round value, the lot size will
be adjusted.
The round lot and odd lot orders are integrated in the order book. However round lot
orders and odd lot orders have separate set of trading rules. Under some circumstances
round lot orders can be executed against odd lot orders.
Helsinki Stock Exchange
In Helsinki the target value for round lots is around 1 000 eur in connection with IPOs. The
round lot values vary between 60 eur and 5 000 eur. Lot sizes can be 1, 10, 20, 50, 100,
200, 500, 1000, 2000, 3000 or 5000 shares. The average value of round lot at HSE is €832
(May 2005).
Odd lot order book and round lot order book are separated. Odd lot orders are sorted in
the trading system according to price-time priority just like round lot orders. However,
order time priority has no effect on the matching of odd lot orders. The matching of odd lot
orders is based on optimization where the number of shares traded in each odd lot
matching occasion is maximized.
Odd lot orders are matched only at the price of last round lot trade, which can update the
latest paid price. All odd lot orders that have a price equal to or more generous than the
latest paid price take part in the matching.
Oslo Bors
In Oslo the target lot value is no 10 000 NOK for all companies. Accepted lot sizes are 1, 2,
5, 10, 20, 50, 100, 200, 500, 1000, 2000, 5000 or 10000. Lot sizes for Oslo Bors are
revised quarterly.
The round lot and odd lot orders are integrated in the order book. However round lot
orders and odd lot orders have separate set of trading rules. Under some circumstances
round lot orders can be executed against odd lot orders.
Iceland Stock Exchange
In Iceland the target lot value is 100 000 ISK for blue chip companies and 50 000 for all
other companies. Lot sizes can be 20, 100, 200, 1000, 2000, 5000 or 10000 shares. The
lot sizes are revised semiannually in order to keep the lot values unchanged.
The round lot and odd lot orders are integrated in the order book. However round lot
orders and odd lot orders have separate set of trading rules. Under some circumstances
round lot orders can be executed against odd lot orders.
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2.2 Lot sizes in benchmark exchanges
The biggest exchanges in Europe have round lot 1. Euronext introduced round lot 1
simultaneously with the new Cash Market Trading System in October 2000. London Stock
Exhange has always used lot size one and Deutsche Börse introduced round lot 1 in August
2002.
TABLE 2. Lot sizes in benchmark exchanges
Market
Round lot size
Comments
London Stock
Round lot 1
CCP
Exchange - SETS
Deutsche Börse -
CCP
XETRA
Round lot 1
Euronext
Round lot 1
CCP
(Source: The various exchanges' homepages)
2.3 Research on round lots
There has been very little (if any) research on the optimal lot size. However, Deutsche
Börse has published following results of the change to round lot one in 2002.
Deutsche Börse first changed the lot size to one in the MDAX market in March 2002. In
August 2002 it reported following results:2
•
•
•
Price spreads shrank from 0.71 percent to 0.63 percent on average.
The liquidity measure rose for stocks with high, medium and low turnover.
The share of “uneven” – i.e. not divisible by 100 – orders rose considerably.
Deutsche Börse announced that since the effect of round lot one had been positive in the
MDAX market the minimum lot size of one share would be applied to all DAX stocks as of
August 2002.
2.4 Implications of change in the round lot size
Since NOREX objective is to integrate the Nordic markets and to align the market structure
to industry best practices a natural step would be to harmonize the current practices in the
SSE, HSE, CSE, OB and ICEX. The ultimate target is, of course, to ensure best liquidity for
market participants in our markets.
However, there are several topics to be taken into account when considering a reduction of
round lot values or introduction of round lot one.
2
Source: Deutsche Börse web site.
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Clearing and Settlement costs
As shown in Table 2 the exchanges that have introduced round lot 1 have also CCP.
NOREX exchanges do not have CCP.
Currently the number of trades executed in the odd lot order book varies in the NOREX
markets between 2,17 % and 8,35 % of the total number of trades. If odd lot order book
would be abolished it is likely that the execution of a big order would result in a higher
number of trades per order. For large orders this could mean higher clearing and
settlement costs.
Table 3: Amount of odd lot trading of total trading in 1-6, 2005.
CSE
HSE
SSE
Number of odd lot trades/
Number of total trades
2,17%
2,67%
6,02%
OB
ICEX
2,57%
8,35%
Trading costs
In SSE, CSE, OB and ICEX the trading fees are partly based on the number of trades. An
increase in the number of trades per executed order would then have impact on the
trading costs. However, it is very difficult to estimate how much the ratio of number of
trades per executed order would change. Today, the ratio or trades/executed order varies
between 1,6 and 1,76.
Table 4: Average number of trades/executed order in the NOREX exchanges in 1-6, 2005
CSE
HSE
SSE
OB
ICEX
Average number of
trades/executed order
1,65
1,66
1,72
1,76
1,60
2.5 Three options
NOREX proposes a reduction in the round lot size. NOREX suggest the market participants
to choose from the following alternatives:
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2.5.1 Option A: Harmonized round lots
In option A the target lot value would be as follows:
CSE
HSE
SSE
OB
ISEX
DKK 5 000
EUR 500
SEK 5 000
NOK 5 000
ISK 50 000
In all NOREX exchanges a semi-annual review process regarding lot sizes would be
introduced.
Market impact considerations
Smaller round lot size would allow greater access to individual investors who are currently
not able to trade in the round lot order book. Volumes could increase which could improve
liquidity and reduce spreads.
Usually listed companies do stock splits in order to attract small investors and to increase
liquidity of their stock. There is also evidence that the frequency and volume of small
trades increase following a stock spilt. We expect the market impacts of smaller round lots
to be similar.
If the lower round lot size would enable more small investors to purchase the stock, the
result would be that the proportion of small trades would increase. This could lead to
higher trading fees for big orders.3
2.5.2 Option B: Introduction of lot size one
In this alternative there would be just one order book. No separate matching rules would
be needed for the odd lot order book.
Market impact considerations
NOREX would be in line with European benchmark on round lots. We expect spreads to be
reduced as they were in Deutsche Börse. The market would be more available for small
investors.
However, since it is likely that the proportion of small orders would rise it is possible that
big orders would be executed in several trades. This would lead to higher transaction
costs.
Round lot one will need sufficient customer support in order for NOREX to consider
implementing it.
3
In HSE the exchange fee is based on executed order. In SSE, CSE, OB and ICEX the fee is based per trade.
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2.5.3 Option C: Leaving the present round lot regime unchanged
The third option would simply mean no change in the current market structure.
We would appreciate to receive your responses to this consultation paper by September
29, 2005. If you have any questions, please do not hesitate to contact your account
manager.
Yours sincerely
NOREX
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3 Questionnaire:
Company:
Contact person;
Contact details:
Which option is most preferable (A, B, or C)? ____
What is your opinion about Option-A: Harmonized round lots?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
What is your opinion about Option–B: Introduction of round lot one?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
What is your opinion about Option–C: Leaving present round lot regime unchanged?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Are there any other comments or aspects you want to disclose to NOREX in this matter?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Please send your answer to (preferably by e-mail):
OMX Exchanges
Henning Kruse
Nikolaj Plads 6
DK- 1067 COPENHAGEN
DENMARK
Tel: +45 3377 0381
Email: henning.kruse@omxgroup.com
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