In this instance, investors run the risk of being charged a bigger spread if they decide to buy or sell above this. However, when the market for a particular security suddenly changes, the market maker may decide to only offer quotes in EMS size. Under normal circumstances, you can typically trade up to three or four times the EMS without being charged extra. Anything above this, and the market maker would be within their rights to offer a worse price by widening the spread. What does EMS mean when making a trade?įor example, say you wanted to buy shares in Company A with a current share price of 11.5 pence and an EMS of 50,000, multiplying the share price by the EMS, you would determine that the quote you receive should be true up to the value of £5,750. For SETSqx and SEAQ securities, EMS consists of 2% of ADT divided by the average share price for the period of ADT calculation.īased on the above, it makes sense that larger, more liquid securities should have a higher EMS, and smaller cap companies with lower levels of ADT should have a smaller EMS. For SETS securities, it is 1% of average daily turnover (ADT) of shares divided by the average share price for the period of ADT calculation (subject to an upper cap of around £25k and a lower cap of £2.5k). On the London Stock Exchange, the EMS is set differently for each individual stock. How is Exchange Market Size (EMS) calculated? In other words, this is the number of shares you can safely trade without the market maker being allowed to charge you extra by widening the spread significantly. Previously called Normal Market Size (NMS), Exchange Market Size represents the number of shares market makers are compelled to trade at the price they are currently offering. What does Exchange Market Size (EMS) mean? This is where the term, Exchange Market Size (EMS), comes in to force.
Although obligated to provide sufficient liquidity for investors to be able to transact in the securities of quoted companies, market makers are not expected to offer quotes that are firm up to an unlimited size.
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