Nasdaq is set to launch a new auction model targeting illiquid shares on Nasdaq First North Growth Market to further enhance market integrity and investor protection, effective January 2024.
Nasdaq First North Growth Market, which caters to small- and medium-sized growth companies, has seen liquidity on the whole improve over the 15 plus years it has been operating.
However, the exchange said parallel shares of some companies have had challenges with liquidity.
It added that when the spreads become too wide, relatively small orders can create dramatic price movements. The volatility in these shares can be particularly harmful to retail investors and dampen overall confidence in market integrity.
The new model, which is based on months of discussions and market analysis together with industry participants, aims to change how illiquid shares are traded.
Companies with more than seven percent average spread for two consecutive quarters will be presented with two options.
They can either hire a liquidity provider or offer trading through an auction model with five auctions per day: opening auction, 11.00, 13.00, 15.00 and closing auction.
Initially, it will be implemented for Nasdaq First North Growth Market Sweden and Finland. Due to technical limitations the auction model will be postponed for Nasdaq First North Growth Market Denmark.
Having a liquidity provider is an investment that is beneficial for both investors and the company, according to Nikolaj Kosakewitsch, head of European equities & derivatives at Nasdaq. Investors are protected from high spreads making it easier to enter and exit positions and reduces the risk and cost of trade.
He added, “In our research, we also see that the stock price response on average is positive and the fact that improved liquidity also improves possibilities to access new capital.”
First North Growth Market Rulebook for Issuers of Shares will be updated during the annual change on July 1, 2023 and additional information on the new auction segment will be set out in the Nasdaq Nordic INET Market Model effective July 3, 2023.
The exchange said to ensure that stakeholders which are impacted by the change have sufficient time to adapt, the new rules will be effective when data from Q3 and Q4 has been analyzed and trading in the new auction segment will start on January 18, 2024.
Based on Q3 ands Q4 data, 28 firms listed on Nasdaq First North Growth Market Sweden will be affected by the changes.
This is subject to change as data from the second half in 2023 will determine which companies that are affected by the change.
Nasdaq said that due to technical limitations among some Danish trading members the auction model will be postponed for Nasdaq First North Growth Market Denmark.
“We will continue the dialogue with Danish members to determine when and how they will be able to offer auction trading,” it added.
©Markets Media Europe 2023
