The purpose of introducing liquidity providers is to make it easier to trade in shares and primary capital certificates that have so far attracted only limited interest by improving liquidity in these instruments. By reducing the bid-offer spread, shares and primary capital certificates can be made more attractive for a larger range of investors, and this will in turn encourage a further improvement in liquidity. Introducing liquidity providers will also give companies (issuers) an improved opportunity to influence liquidity in their shares or primary capital certificates.
In brief, the scheme for liquidity providers will ensure that binding bid and offer prices for a company’s shares are available through the trading system on standard terms with a spread not exceeding 4% of the offer price. Both bid and offer prices will be for at least four round lots, and the liquidity provider will quote binding orders for at least 85% of the time for which continuous trading takes place during every trading day.
On 4 October Oslo Børs implemented new categories for listed companies based on the liquidity in their shares. Companies with more than 10 trades per day in their shares over a target calculation period are included in the OB Match liquidity category. Oslo Børs now proposes a change to the criteria for the OB Match category so that a company which arranges a liquidity provider for its shares will automatically be included in this category. In addition Oslo Børs proposes that where a company’s shares do not meet the threshold of at least 10 trades per day, but the company can show that its shares do meet the minimum requirements for a liquidity provider arrangement, the company will also be included in the OB Match category even if no liquidity provider has been appointed.
Stock exchanges around the world use various types of arrangement with a view to improving liquidity. The scheme for liquidity providers now proposed for the Oslo market is on the whole similar to the scheme that has been in use on Stockholmsbörsen since May 2003. A study of the Stockholmsbörsen scheme carried out in autumn 2003 showed a reduction in average spread from 7.0% to 2.7% for instruments with a liquidity provider and a 75% increase in the number of trades. The Stockholm scheme currently involves 12 member firms and 70 companies.
The proposed details of the Oslo Børs liquidity provider scheme have now been circulated to market players for discussion, and the deadline for any comments and suggestions for changes is 19 November 2004.
The consultation paper, which provides a more detailed description of the proposed scheme, is available at www.oslobors.no/ob/hoeringer?languageID=1.
