Stock Exchange has adopted the
aker taker’ pricing model for its equity
derivatives, and has cut trading fees for single stock futures
and options traded through the central order book almost to
The new billing model follows a consultation with market
participants, advisory bodies and regulators. "Since our last
change in fee structure, the market has evolved drastically and
we have adopted the new model to adapt to these changing
circumstances," said Anthony
of equity derivatives trading at JSE in
While the exchange acknowledges that a mechanism will always be
needed for reporting bilaterally agreed trades to the exchange,
as a regulator it also has to ensure the end customer gets the
This can only be guaranteed, JSE believes, if all prices are
all market participants at all times. It therefore wants to
encourage price making on the central order book.
Under the new fee structure, the market maker will get the
booking fees for each transaction as a 100% rebate, meaning
that effectively it pays no fee to the stock
The system is designed to attract traders not just to report
transactions to the stock exchange, but to bring them on
At present, 90% of single stock futures contracts and 60% of
index trades are only reported to the stock exchange, making
for a fairly opaque market in which price discovery is
By contrast, JSE’s flagship product, the FTSE/JSE
Top 40 Index Future, is mainly traded on screen.
The new model rewards liquidity providers – anyone
posting a price on the central order book – and
charges price takers a reduced fee. It is also intended to
enable smaller traders to compete with larger firms to ensure
more competitive markets.
"We hope to incentivise clients to trade and provide liquidity
to the market," said Leibrandt. "Under the new model, anybody
who has access to a DMA system can act as a market maker, which
we hope will bring in more market participants. Hedge funds and
other international investors can use JSE as a gateway to trade
in all futures and options on African stocks, even if they are
not members of the stock exchange."
The new fee structure is based on the nominal value of the
underlying product. That means when stocks fall, fees will
decrease, encouraging trading. The stock exchange will benefit
from rising markets.
The new system also makes allowances for complex trades such as
butterflies, which, under the previous flat fee structure, were
too expensive. "We are one of the few stock exchanges where
fees are based on the delta of the option traded, which we hope
will increase options trading overall," Leibrandt
The new billing model has halved fees for trading single stock
derivatives and raised fees on index futures by basing them on
the trade’s value.
Price makers trading single stock futures and options through
the central order book will not pay any transaction
Price takers’ transaction cost has been reduced to
1bp of the value of the underlying. The maximum cost of
transacting has also been reduced from R1.40 to R1.20 a
contract on central order book trades.
In general, off-screen reported trades will be 20% more
expensive than those on screen, to drive traders to the central
Finally, trading in standardised contracts, defined by the
exchange and traded in high volumes, will be cheaper than
non-standard contracts such as Can Do derivatives, which are
tailormade to the specifications of each client.
While JSE’s fee revenue has been lower since the
new system was introduced on Monday July 5, this week trading
volume has been low anyway.
"I think we’ll see the actual effects on fee
revenue in about a month’s time," said Leibrandt.
"Most market participants are still working to get their heads
around the new model."
Mareen Goebel +44 207 779 8358 firstname.lastname@example.org