Over the past years, the interest in liquidity has been growing on the Danish equity market seeing that all players on the market benefit from a liquid equity market. A rising number of listed companies has become interested in how the price formation of their shares takes place and enter into liquidity provider agreements with a member firm. A liquidity provider agreement ensures that the investors can trade the company’s shares at a narrow spread, meaning that the difference between the bid and ask price is at a reasonable level.
The result of the empirical study shows that every third company listed on the Copenhagen Stock Exchange has entered into a liquidity provider agreement. The conclusion is that it is worthwhile entering into a liquidity provider agreement since the liquidity improves at the same time as the volatility decreases, and the share price rises above normal.
Michelle Egede Paustian concludes that the improved liquidity is attributable to the introduction of liquidity provider agreements and not other factors.
The results of the survey of liquidity provider agreements on the Danish equity market are to a high degree in accordance with the results of similar studies at the Stockholm Stock Exchange, which is also demonstrated in Focus no. 103.
Read the article 'Liquidity provider agreements are gold to the Danish equity market' in Focus no. 104 on the website of the Copenhagen Stock Exchange www.omxgroup.com.
Questions to the author may be sent to the email address: Copenhagen@omxgroup.com until October 24, 2005.