Oslo Bourse Penalizes Unexecuted Orders From Automated Trading

Oslo’s stock exchange will introduce a fee designed to limit computer-generated orders after equity strategies based on mathematical models boosted the number of withdrawn trades and clouded market transparency.

The fee, which will be enforced from Sept. 1, will apply to any order exceeding 70 for each executed trade and will mainly target “orders which are canceled or changed within a second, without contributing to improving pricing or volumes,” Oslo Boers ASA said in a statement today. The exchange will charge 0.05 krone ($0.01) for every unexecuted order exceeding the 1:70 ratio.

Trading based on mathematical models, known as algorithmic and high-frequency trading, has come under scrutiny after a May 2010 crash that briefly erased $862 billion from the value of U.S. shares. Traders and other professional investors withdrew bids as the selloff worsened, according to a September 2010 report from the Securities and Exchange Commission and the Commodity Futures Trading Commission.

“There are no initial costs associated with issuing a disproportionately large number of orders, while it adds indirect costs, which all of the market has to cover,” Bente A. Landsnes, chief executive officer of the Oslo exchange, said in the statement. As the new fee will limit unexecuted orders “the market will become more efficient to the benefit of all agents.”

Nasdaq OMX Group Inc., which manages 75 percent of all Nordic stock trading, presented a similar move in September 2011. The exchange, which runs the Copenhagen, Helsinki, Reykjavik and Stockholm bourses, introduced a 1:250 trade-to-order ratio fee to protect investors against what it called malfunctions in the market.

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