With effect from 1 September, Oslo Børs will introduce a fee that will affect unnecessarily high order activity in the stock market. The purpose of the fee is to discourage orders that do not contribute to the effective and sound conduct of stock market trading. Order activity at unnecessarily high levels has the effect of reducing the transparency of the order picture and so reducing confidence in the market.
Competition and technological development have played a role in radical changes in trading behaviour in the stock market over recent years. Increased use of algorithms as a tool for carrying out various kinds of trading strategy has resulted over time in a steady reduction in the average order size, combined with an increase in the number of order events relative to the number of trades actually carried out. This creates both direct and indirect costs for all market participants, due in part to greater volumes of data and the requirements this creates in terms of investment in infrastructure and greater bandwidth.
“Oslo Børs takes the view that high order activity is not in itself necessarily negative for the market, but we are keen to encourage a situation in which all types of trading contribute to maintaining confidence in the marketplace”, comments Bente A. Landsnes, President and CEO of Oslo Børs.
“It is in general the case that a market participant does not incur any costs by inputting a disproportionately high number of orders to the order book, but this type of activity does cause indirect costs that the whole market has to bear. The measure we are announcing will help to reduce unnecessary order activity that does not contribute to improving market quality. This will make the market more efficient, to the benefit of all its participants”, explains Bente A. Landsnes.
The fee will be linked to an “Order to Executed Order Ratio (OEOR)” of 1:70. This means that the fee will be charged where the number of orders input relative to each order carried out exceeds 70. The order activity that will be included in the calculation of this ratio will principally relate to orders that are cancelled or amended within one second, and where the change does not contribute to improved pricing or volume.
Accordingly, orders that remain open in the order book for some time, or which are updated in a manner that makes a positive contribution to market quality by reducing the spread between best bid and best offer or by increasing order book depth will not be included in the calculation of the type of activity that Oslo Børs wishes to make the subject of the additional fee.