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Harmonised tick sizes for European marketplaces

Oslo Stock Market (Børs) will introduce new tick sizes for the 25 shares that make up the OBX index by Monday 31 August 2009. This is the result of the initiative taken by the Federation of European Securities Exchanges (FESE) to simplify and harmonize tick sizes in European markets.

Tick size refers to the minimum amount by which the price of a share is allowed to move up or down, and is thus the minimum difference between bid and offer prices in the order book.

Oslo Børs decided to reduce the tick size for all OBX shares to NOK 0.01 as a result of reductions in tick sizes in July 2009.

Competition between marketplaces to offer the lowest tick size can have adverse consequences for the market, particularly if the difference between bid and offer prices in some shares becomes so small that the advantage of placing large orders becomes no more than marginal. This can lead to lower activity, which has an adverse affect on marketplace liquidity.

The risk of such adverse consequences is a major reason for the decision by the FESE members, the broking community, and the MTFs Chi-x, BATS Europe, Nasdaq OMX Europe and Turquoise, to sign up to a harmonized and simplified tick size regime. Harmonization in this area is beneficial for all market participants, including investors.

In practical terms, the exchanges have agreed to use one of four tick size tables. The MTFs have in turn agreed to apply the tick size table adopted by the listing venue for the underlying shares. The London Stock Exchange and Oslo Børs entered into a strategic partnership agreement earlier this year to co-operate on technical issues and business development, and have therefore adopted the same tick size table.

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