A DV E RTOR IAL
Fig 2: Large in scale hidden midpoint pegged orders
Daily Value Traded in UK Names (EUR)
Proportion of Turnover split
by Trade Size*
300,000,000
Trade
Sizes
£25k -
£250k
28%
250,000,000
200,000,000
150,000,000
100,000,000
Cboe LIS ITG Posit
Liquidnet Turquoise Plato Uncross
LSE Midpoint Pegged Order (EUR)
ing volumes in 2019 to date down versus
the same period in 2018, in aggregate the
proportion of business when taking into
account this increase in auction activity (in
particular the close) has remained reason-
ably consistent. In terms of trading UK
names, London Stock Exchange accounts
for approximately 70% share of the market
which is broadly in line with 2018’s activity.
Why is this change in the distribution of
liquidity provision important and what is the
London Stock Exchange Group cash second-
ary market doing to help clients navigate the
current environment?
Sitting right at the core of the cash equi-
ties trading ecosystem, understanding the
evolving needs of clients and partnering
through innovation remain fundamental to
our liquidity proposition strategy.
The promotion of certain liquidity-seek-
ing order types on-book at London Stock
Exchange has yielded positive results and
a renewed focus from brokers in targeting
their usage. As a result, we’ve seen brokers
incorporating these order types into their
daily smart routing workflows. Take the
use of iceberg orders for example. In early
Q1 this year almost one third of the top 50
trades on London Stock Exchange were
derived from the use of iceberg order
functionality (excluding closing auction).
In January 2019 alone some £6.8bn in value
traded originated from iceberg orders.
Building blocks
With a focus on brokers looking to trade
using LIS functionality, the London Stock
Exchange hidden mid-pegged order type is
seeing further positive growth. This is an
order which is required to be larger than
LIS upon entry and is fully integrated with
the orderbook to interact with both lit and
dark contra, to source additional liquidity
05-Apr
04-Apr
-
50,000,000
Trade
Sizes
>£250K
8%
Trade
Sizes
<£25k
64%
*Q4 2018
Data Source: CBOE Market Share webpage, LSE internal data
in a manner with is compatible with liquid-
ity seeking algorithms. While this is not a
new feature, brokers are now pro-actively
building the hidden mid-pegged order type
into their smart order routing liquidity
seeking toolkit. To date, some twenty Lon-
don Stock Exchange member brokers have
executed using the order type and there
are up to a dozen actively participating on
any given day. When considered as a LIS li-
quidity trading opportunity in its own right,
daily volumes executed in UK names are
now considered measurable against those
LIS execution channels which specialise in
providing electronic block liquidity (Fig 2).
The recently-launched London Stock
Exchange auto-RFQ platform for equities,
ETFs and Depository Receipts (DRs) is an
example of further innovation, looking to
bring together potentially the largest and
most diverse range of liquidity provision
including ELPs, banks, market makers and
any member firm of London Stock Exchange
onto a single electronic platform. The fully
automated auto-complete RFQ platform
uses MiFID II-compliant pre-trade trans-
parency in order to offer meaningful trade
sizes with the expectation of near immedi-
acy of fill. It also requires no manual inter-
vention throughout the trade lifecycle as it is
designed so that it utilises pre-existing client
electronic trading workflows.
Creating efficiency and aggregation in
the search for liquidity as oppose further
fragmentation of effort and resource is the
goal for London Stock Exchange. Being
a centrally cleared model we believe that
London Stock Exchange’s RFQ platform
also gives the opportunity for clients to gain
access to liquidity provision which they may
not otherwise be accessing. Trading mem-
bership of London Stock Exchange is the
only pre-requisite to participation. This is a
sell-side accessed model on behalf of the end
investor. Functionality including the ability
to control anonymous versus named routing
and the self-ownership of counterparty poll-
ing further enriches the proposition without
the need for bi-lateral counterparty connec-
tivity costs, nor any potential concerns over
counterparty risk.
Customer choice
Whilst the search for liquidity and the
importance of smart order routing logics
continues to prove a differentiator for
brokers, the suite of liquidity channels
offered not only by London Stock Exchange
cash secondary markets but also Turquoise,
complement each other by offering choice
to clients (both members and non-mem-
bers). Each liquidity channel, or order
functionality can be utilised in combination
depending on the liquidity compromise
which often dictates routing behaviour, the
pay-off between urgency and size.
Through one connection clients can access
a complete set of liquidity channels from
both London Stock Exchange and Turquoise,
ranging from the primary central limit order
book on London Stock Exchange and the
Turquoise Lit MTF, where recent hard-
ware refreshes have allowed for increased
efficiency in messaging traffic and enhanced
routing performance, through to dark block
trading above large in scale via Turquoise
Plato Block Discovery. Integrated order types
on London Stock Exchange’s orderbook in-
cluding icebergs and the hidden mid-pegged
order which, through the controlled used
of Minimum Execution Sizes (MES) can
deliver outsized fills, alongside Turquoise Lit
Auctions which cater for all trade sizes on a
multi-lateral platform allow the successful
navigation of the challenges the market faces
in the new liquidity landscape.
Issue 1
TheTradeNews.com
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