Users of the PLUS trading platform pay lower fees and get better prices than those using the SETSmm trading platform owned by the London Stock Exchange. Or so says a study by Cass Business School on behalf of the PLUS Markets Group.
When faced with a choice of execution platforms PLUS and SETSmm data from both exchanges shows that price improvement gains accrue to users of the PLUS platform at no significant variation in cost, say the authors of the study.
The study was conducted by Ian Marsh, Professor of Finance at Cass Business School and Panayotis Parpas, Department of Computing, Imperial College London. The study analysed all trade execution data on PLUS during February 2006 comparing them with SETSmm data for the same period. In total 23,769 transactions in 348 different stocks were analysed on five key issues:
* Actual trade prices on PLUS were compared with quoted prices. This showed an average price improvement (quoted prices to transactions) of around 77% per cent.
* Costs of trading on PLUS were calculated and showed an average of less than 0.5%, almost exactly the same as the cost of trading on SETSmm.
* Over 90% of actual PLUS transaction take place at or better than the best offer price on SETSmm.
* Almost 99% of PLUS transactions could have been executed immediately on SETSmm on trades up to 2 normal market size (NMS). However over 3NMS this falls to 65% – indicating comparably positive market depth for size on PLUS.
* Where deals can be executed on PLUS and SETSmm the average gain from doing so on PLUS was one third of one percent on deals up to 2NMS, rising to two thirds of one percent over 2NMS. i.e. with a SETSmm mid-price datum of 300p PLUS sellers would get 301-303p and buyers would pay 299-297p depending on size. For even larger deals execution on SETSmm may not be possible.
This report shows, for the first time, solid statistical evidence of the measurable benefits of our quote driven system and the flexibility inherent in it to deliver improved prices, says Cyril Theret, Business Development Director at PLUS Markets Group. Not only are fees lower on our market but the prices at which shares can be bought are generally better. This shows that traditional stock exchanges are not only open to competition but that competition is proving effective. Investors should check that their broker is a member of PLUS to ensure they are getting the best service.
Since the launch of the PLUS service in December 2005, 155,875 bargains worth over 1 billion value, representing 1.84 billion shares traded, have been executed through PLUS rather than through traditional exchanges.