New Equity Price List to Incentivise Liquidity Provision and Stimulate Further Growth

London - 1 August 2008

Exchange to be cheapest trading venue in Europe for major users

London Stock Exchange has today outlined its new price list for trading services. It will take effect from 1 September 2008 and applies to all trading clients. The new pricing structure is designed to:

• Accelerate the structural shift in trading by unlocking the considerable potential for further growth from statistical arbitrage and algorithmic trading, the major driver of change in market micro-structure;

• Reward liquidity providers for competing more aggressively to offer tighter spreads and greater depth of liquidity;
• Encourage new growth that will produce a step change in market efficiency by reducing the overall cost of trading markedly;
• Attract new members and market users to facilitate new order flow and trading strategies; and
• Ensure predictability of trading costs in order to maximise the efficiency and velocity of automated trading strategies.

This tariff creates the lowest net fee and largest credit of any venue in Europe for clients that achieve upper bands for both liquidity provision and liquidity taking.

Clara Furse, Chief Executive of London Stock Exchange, said:

“We believe the new shape of this tariff structure will capture the important growth arising from the major shift towards statistical arbitrage and algorithmic trading in UK equity markets. This continues to be a major driver of change in market micro structure, driving overall growth and significantly improving market efficiency by reducing total transaction cost, thereby decreasing the cost of capital for the companies listed on our market.”

Key features of the new tariff include:

• For FTSE 350, IOB and other liquid securities,

- the introduction of a tiered credit scheme for liquidity provision based on value traded by a client in each month; and
- simplification of charges for taking liquidity with a revised tiered discount scheme based on value traded in each month to better align with clients’ business models.

• For smaller company securities,

- registered market makers will receive a fixed credit rate for providing liquidity and a simple discounted charge for removing liquidity.

• For all securities,

- removal of the 7.5 pence execution charge from both sides;
- removal of the standard 1 pence order management charge;
- removal of the maximum per trade charge; and
- free off book trade reporting for registered market makers in supported securities.

The new tariffs will deliver significant rewards and incentives for trading firms and are intended to stimulate new and additional business. In particular, the introduction of credits for liquidity provision should improve market efficiency through deeper liquidity, tighter spreads and better prices.

For trading in smaller company securities, the tariff reflects the vital role played by registered market makers and is aligned with the quality of liquidity they provide. In addition, the Exchange will continue to encourage voluntary liquidity provision in smaller company securities by removing all fixed charges.

In terms of financial effects, we expect the new tariff to drive growth in trading in the same way as previous tariff adjustments have done. Excluding the benefits from this expected market growth, if the new price list had applied at the start of the current financial year, revenues for SETS order book trading in Q1 would theoretically have been circa £5 million lower.

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