Full package

How the JSE’s Equity Enhanced Order Suite brings efficiency to complex orders

Full package

Small and simple stock market trades are quick and easy to execute via the JSE’s various platforms. Yet not all trades are small, and the complexities involved mean that brokers and traders need enhanced solutions for executing their large-in-size orders.

‘The JSE offers a suite of products in our Complex Order Suite that enable our clients’ trading strategies by providing a safe haven to execute those orders in a non-visible yet regulated environment,’ says Martin Koch, Trading Operations Manager at the JSE.

Using these equity market enhancements will give brokers a competitive edge and improve the efficiency of filling large orders, while minimising the impact on the trade.

One of the key solutions in the JSE’s Equity Enhanced Order Suite is the central order book cross trade (XT) functionality, which provides for the reporting of trades without any impact by market forces. ‘This is an internal/single-sided cross where the pre-negotiated trade is entered within a single member firm on our central order book,’ according to Koch. ‘It is important to note that a trade resulting from the submission of a cross order by market participants will only result in a cross trade and will have no impact on orders. Trades resulting from cross orders will only be matched within the visible best bid and offer [BBO].’

The functionality has also been enhanced with an option to execute the cross order at the midpoint if the price does not meet the criteria of being within BBO at the time of order entry. ‘This secondary execution method is optional and will automatically match at the midpoint if elected,’ says Koch. Block trades (BTs), meanwhile, are now simpler, smaller and have a more easily determinable minimum trade size. ‘Through a rolling average daily volume assigned to “tiers” corresponding to a range of traded value, we have eliminated the need to calculate the BT trade size in addition to this change.’

‘Off-order book principal trades [OP] that meet the prescribed minimum size criteria applicable for BTs will now be booked as BT trades. We’ve retained the OP trade type, but only for circumstances where the transaction is with a foreign professional market participant and where no minimum value applies.’

The Iceberg Orders functionality enables brokers to submit orders and display only a small portion of the total order, allowing them to have their order residing on the central order book without disclosing their full order size.

Pegged Hidden Orders are another solution. These are non-visible orders that allow for the improved execution of large orders at prices that are relative to the best executable spread of the instrument. ‘What this means is that you can execute large orders hidden, and link them to either the best bid, offer or mid-price of the order book,’ says Koch.

‘Then, finally, there’s the end-of-day volume auction, which provides for a non-visible uncrossing of large orders at the closing price,’ he adds. ‘Here you can execute more of your order quantity completely dark at the end of the day at a known price – in other words, the closing price.’

The Enhanced Order Suite is specifically geared towards the equity market, he explains. ‘We’re helping brokers to match what they need to trade – faster, more efficiently and cheaper,’ says Koch. ‘This suite of solutions answers questions like, as a broker, how do you achieve large orders for your clients; and how do you buy and sell the shares you want to, apart from the central order book, which involves on-screen trading and trading little bits here and there? There are inefficiencies involved in bulk trading, and each of the enhancements we have created has a specific use case for why you would want to use it.’

By Mark van Dijk
Image: Gallo/Getty Images