Nikolaj Hesselholt Munck points out that the electronic stock trading systems have improved constantly since the first generation replaced floor trading. Share trading is increasingly shifting to electronic trading systems and thus moving away from off-exchange trading which must subsequently be registered in various reporting systems. In his article, Hesselholt Munck examines how costs of trading have evolved and whether the automation has implied economies of scale in the electronic order book trading.
Trading costs have decreased considerably over the past seven years. The costs of trading at the largest exchanges have dropped by 22 percent of the total trading costs. The author distinguishes between direct and indirect costs. The direct costs, fees and commissions, have fallen by 28 percent. Among the examined exchanges, the Copenhagen Stock Exchange and Euronext have seen the highest decreases in costs of trading. This also positions the Copenhagen Stock Exchange as the cheapest market among the exchanges under review.
Hesselholt Munck shows that there is a significant interrelation between the turnover in the trading system and the direct and indirect costs. The more trading that is done on-exchange, the lower the costs will be. Also, when examining the turnover via the system, the variation in costs is much more evident compared with studies that look at turnover and market capitalization exclusively.
Nikolaj Hesselholt Munck concludes that the Nordic exchanges are among the cheapest marketplaces in Europe, and the more the electronic trading system is used, the lower the costs of trading becomes.
Read the article ’When share transactions went high-tech’ in Focus no. 105 on the website of the Copenhagen Stock Exchange www.omxgroup.com. Questions to the author may be sent to the email address: copenhagen@omxgroup.com until December 23, 2005.
