LSE Prepares for Live SETS Auction at Beginning of Trading Week

The LSE will see its daily intra-day auctions take place on March 21.

The London Stock Exchange’s (LSE) will see the first of its daily intra-day auctions take place on Monday, March 21 – the auctions were designed to help provide new benchmarking opportunities for a multitude of fund managers as well as a process for managing the upcoming MiFID II volume caps, which financial markets are steadily drifting towards, according to an LSE statement.

The LSE’s auctions will last a total of two minutes, and will feature a cessation of all SETS equities in order to allow the broader market to take part in the auction process. There will be no additional fee or extra direct cost imposed on customers in order to take part in the auction, with the auction applying to all SETS equity securities. Moreover, the LSE’s decision to halt SETS trading will be a scheduled pause, and has been planned for some time.

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The auction itself will take on a unique role despite adopting the methodology and process of other LSE auctions. The auction will begin at the commencement of the auction call at 12:00 GMT, whereby all orders that have been submitted for that specific auction will be injected immediately. Subsequently, orders may then be entered, modified and deleted during an auction call, however no automated execution will occur.

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In addition, through the duration of the auction, the LSE will only release the most up to date auction uncrossing prices and sizes rather than the full orderbook. Rather, this will be updated whenever orders are added, deleted, or modified – by the end of the auction period, the balance of buy and sell orders will consequently be used to calculate the uncrossing price and continuous trading will recommence.

According to Brian Schwieger, Head of Equities, LSE, in a recent statement on the upcoming auction: “This is a very significant change to the trading day, following a detailed consultation with market participants.”

“The auction will allow participants to place orders in a truly confidential, yet price-forming environment via a well understood mechanism. Its introduction is in direct response to demand from buy-side participants for neutral, infrastructure-led solutions for MiFID II friendly alternatives to dark pools and a midday benchmark,” he added.

Earlier this week, Deutsche Boerse AG and the LSE Group announced that the companies had reached a landmark merger agreement, creating one of the biggest players on the market, which will be streamlining a product list of multiple asset classes – derivatives, equities, fixed income, FX and energy products.

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