• Evaluation Committee Of The AEX Effectenbeurs Trading System (TSA) Calls For A Stronger Central Market
  • Strengthen The Central Market In Dutch Securities By Stimulating The "Order-Driven" Character Of The Trading
  • Abolish The Asset Advertisement Screen And Discontinue AIDA, The Automated Inter-Dealer Broker
  • Revise The Role Of The Hoekman

These are the most important changes recommended by the Share Trading Committee to AEX Effectenbeurs management as part of the process of consultation on the evaluation of TSA, the AEX-Effectenbeurs trading system.

The strategy of AEX-Effectenbeurs management is to create highly competitive and transparent trading systems for the merged stock and options exchange. The recommendations given by the Share Trading Committee are of crucial importance to the on-going evaluation process that needs to reach a decision on how to revise the AEX-Effectenbeurs trading system even earlier than the end of the present year. Its content is based on extensive consultation amongst market participants both inside and outside the Netherlands, and analysis carried out by the project team. In the coming weeks, before AEX management publishes its proposal at the end of October, the exchange's various advisory bodies, including the Options and Futures Committee, will have an opportunity to give their opinions. The month of November is set aside for joint consultation.

A forward-looking policy

The preparation of recommendations on the functioning of Trading System Amsterdam (TSA) is in accordance with the commitment to carry out a thorough evaluation of the system after a period of three years. The Share Trading Committee did not just look at the question of the extent to which the aims of TSA have been achieved, but sought to prepare for the future. From 4 January 1999, trading on the leading exchanges in continental Europe will be carried out in Euros, so that it is extremely important that AEX-Effectenbeurs prepares itself for an increase in international competition, particularly in the field of share trading.

Order-driven

AEX-Effectenbeurs' share of the market in international trading in Dutch shares has risen 10% from its 1991 low, to the current level of 75%. Thanks to its pro-active intervention, the exchange broke out of the downward spiral of the beginning of the nineties. In order to retain its market position, even after the transition to the era of the Euro, the order-driven character of the market in the most actively traded shares (those currently in the limit order book) is to be strengthened. The Share Trading Committee has determined that will the hoekman do provide added value to the trading system as a whole, they will in future have to act more as intermediaries and providers of service rather than as competitors to the brokerage houses. This is bound to mean a reduction in their role (and thus their privileges) as for example by the scrapping of the 15 second rule.

The end of ASSET and AIDA

The Share Trading Committee also proposes the abolition of the ASSET advertisement screen. This system, which is not unlike SEAQ International, has not produced more turnover between intermediaries and institutional investors. Nor is their any good case for the continued existence of AIDA, the automated inter-dealer broker. In future it will be possible to submit orders in the retail sector free of charge, and also to offer anonymity.

Retention of central price formation

The Share Trading Committee feels that AEX-Effectenbeurs should do everything in its power to retain its role of being the market where the share price is established. A powerful central market for Dutch securities is in the interests of the national economy and all those active in the market, investors, issuers, intermediaries and AEX-Optiebeurs. Fragmentation of the market must be avoided, most of all because an order-driven market can only operate at all, let alone optimally, by bringing together as much supply and demand as possible.

Continuing innovation

The Share Trading Committee is satisfied that TSA has made an important contribution to the strengthening of Amsterdam's competitive position, but points out that elsewhere new developments are making great strides on competing markets. The Committee subscribes to AEX's efforts to continue to remain the price-setting market for Dutch shares in the era of the Euro, and believes that a competitive trading system is a matter of vital importance if this is to be achieved. One important element will be further increase in the number of remote members (foreign security houses with direct access to the market).

Introduction at the start of 1998

The recommendations of the Share Trading Committee relate mainly to the way TSA functions for the most liquid shares, because it is precisely for these shares that the international competition is likely to be greatest. They feel that the measures they have proposed should be introduced on 1 January 1998 or as soon thereafter as possible. The Committee now intends in the shortest possible term to evaluate the way the system functions for the remainder of the shares. Any adjustments that may be required can be implemented after measure have been taken for the shares in the limit order book.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Thom Hoedemakers, Amsterdam Exchanges AEX Amsterdam: 00 31 20 550 4540 or Paddy Manning, St James Corporate Communications London: 44 171 436 4101.