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NYSE Liffe to introduce premium-based tick size on Amsterdam options

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NYSE Liffe will introduce a premium-based tick size for all equity options traded on Amsterdam’s derivatives market on 2 June 2009.

NYSE Liffe will introduce a premium-based tick size for all equity options traded on Amsterdam’s derivatives market on 2 June 2009.

As from that date, orders for equity options with a premium of EUR0.20 or lower, can be entered and traded at a tick size of EUR 0.01. The change will make it possible to trade all prices between EUR 0.01 and EUR0.20 at one cent intervals, and result in a narrower spread between the bid and ask price. The standard tick size of EUR0.05 will continue to apply to prices of EUR 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 the change.

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. NYSE Liffe says the EUR0.01 tick size will give investors much greater choice.

Jonathan Seymour, director of equity derivatives at NYSE Liffe, says: ‘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 recognised 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. The market model was first developed in Amsterdam and was later also introduced in Brussels, London and Paris.

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