"We have seen on SETSmm that the right incentives can be effective in encouraging market makers to provide more liquidity in smaller securities.
"The Larger Size Market Maker scheme is entirely voluntary and by acting as an enhancement to the existing minimum requirements for Market Makers, we hope that in time it will have a significant impact on liquidity for the smaller end of the market."
Ali Mortazavi, Head of Trading and Market Making at Evolution Securities, which was the first member firm to sign up to the scheme, said:
"We know that spreads and the impact they have on the cost of trading can be an important factor for our clients in deciding their tactics. This incentive scheme will help us to provide tighter spreads and bigger sizes, and more importantly will give an independent, transparent benchmarking of the quality of the service that we provide."
Amy Nauiokas, Head of Barclays Stockbrokers, said:
"We are delighted about the introduction of this innovative change that will have a positive impact on the small cap market. Many of our clients deal in companies of varying sizes and deem smaller companies as interesting stocks to hold. Despite the potential that can often be realised in these stocks, previously limited liquidity means they are often inaccessible and deter investors. We look forward to drawing on the changes brought about through this scheme and offering enhanced liquidity and increased opportunities to our clients.”
Eleven Market Makers have committed to the Larger Size Market Maker scheme: ABN Amro Bank; Altium Capital; Evolution Securities; Investec Bank; JP Morgan Securities; Merrill Lynch; Numis Securities; Piper Jaffray; Royal Bank of Canada; Seymour Pierce; UBS Investment Bank.
The incentive scheme will offer Larger Size Market Makers a proportion of the Exchange charge for trades in every security in which they qualify. In addition, Market Makers qualifying as Larger Size Market Makers will be entitled to use this designation in their communications with member firms. Lists of Larger Size Market Makers, with details of the number of securities in which they qualify, will be available on the Exchange's website.
To qualify as a Larger Size Market Maker, a firm's quotes must meet the size and spread requirements in at least half of the securities in which they act as a registered Market Maker in a given trading segment for at least 75 per cent of a given month. To meet the requirements for SETSmm securities, Market Makers must provide at least 1NMS or £2,500, which ever is the larger, with a bid and offer spread within 80 per cent of the ruling spread. For quote-driven securities the maximum spread will be 10 per cent and the minimum provision will be 1.5 NMS or £2,500.
