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On 2 June 2009 NYSE Liffe will introduce premium-based tick size for all equity options traded on Amsterdam’s derivatives market. As from that date, orders for equity options with a premium of €0.20 or lower, can be entered and traded at a tick size of € 0.01. The change will make it possible to trade all prices between € 0.01 and €0.20 at 1 cent intervals, and result in a narrower spread between the bid and ask price. The standard tick size of €0.05 will continue to apply to prices of € 0.20 and above.
The spread is an important part of the cost of an option transaction. The narrower the spread, the cheaper the transaction. Retail investors are expected to be the main beneficiaries of this improvement in the quality of the market. The concept of the premium-based tick size was developed to ensure that the tick size is in line with the price of the options, i.e. that low-priced options have a smaller tick size than more expensive options. The advantage of the €0.01 tick size is that it will give investors much greater choice.
Jonathan Seymour, Director of Equity Derivatives at NYSE Liffe said: “NYSE Liffe is introducing premium-based tick sizes for options traded in Amsterdam as part of its ongoing strategy to continually improve and enhance the quality of this market for its customers, already recognized as one of the best options market models in the world.”
Amsterdam’s options market operates on the basis of a central market model designed to serve both professional and retail investors. The model provides investors with access to competitive prices throughout the trading day by displaying continuous bid and ask prices. This increases liquidity, improves the quality of the market, and provides clients with added value. The market model was first developed in Amsterdam and was later also introduced in Brussels, London and Paris. Trading options on an exchange is the safest choice for investors because LCH.Clearnet guarantees all obligations.
