New billing model for JSE’s Equity Derivatives Market
By Allan Thomson
Head of Derivatives JSE Limited

his past June, the Johannesburg Stock Exchange’s Equity Derivatives market has introduced the Maker Taker model of transaction charges in a billing model change launched by the exchange. The Maker Taker model is designed to give liquidity providers an incentive to trade. Transaction fees have been cut to zero for suppliers of liquidity trading through the central order book and have been reduced for all participants trading in most instruments on the Equity Derivatives market. This includes those fees charged to price takers who trade on-screen on the central order book.

The new pricing structure is designed to distinguish between standardized and non-standardised products and to reward central order book trading. Trading fees for non-standardised products, including the exchange’s Can Do derivatives which are tailor-made to fit client needs, remain unchanged.

The JSE Equity Derivatives Division has not structurally altered its billing model for a number of years. It is with the aim of adapting to changing circumstances as well as encouraging greater activity on the market, that this billing model has been formulated.

The JSE Equity Derivatives team has researched international models and consulted with market participants, advisors and regulators to find the most appropriate model. The model, which has also been debated by the Executive Committee and Board, is based on key principles. It moves from a flat fee structure to nominal underlying value and Delta based fee structure, charges less for central order book trades than reported trades and decreases charges for transactions in standardised contracts relative to non-standardised contracts. It also introduces a minimum number of contracts or value for liquid contracts that will be permitted to trade off-screen. The new methodology will be implemented as a phased approach.

The new billing structure follows the internationally recognised Maker Taker model, which is widely used by derivatives exchanges worldwide. Global experience is that this pricing structure increases traded volumes on exchanges by giving traders an incentive to post additional liquidity. The model also enables smaller traders – such as individual investors – to compete with larger firms and to ensure more competitive markets.

“The time is right to incentivise market participants by acknowledging the role of liquidity providers, reducing average trading costs and introducing lower minimum charges to trade for all central order book participants,” says Director of Equity Derivatives Allan Thomson. “We also aim to encourage diverse market participants, including individual investors and algorithmic traders.”