The JSE’s complex order suite continues its strong performance


The JSE’s complex order suite continues to outperform the pace of trading-activity growth across the broader market. Overall equity-market trading activity grew at 1% in 2021, reaching R5.86 trillion (R5.79 trillion in 2020) – this modest growth came at the back of a 2% increase in the daily average trading activity. By comparison, trade across the complex order suite, as a segment, jumped by 50% to R437 billion last year, from R291 billion in 2020. (All figures are quoted on a single-side basis – as in, only the ‘buy’ leg of trades are counted.)

Langa Manqele, Head of Equities and Equity Derivatives at the JSE, says the complex order suite first saw a big boost in usage in early 2020, at the onset of the COVID-19 pandemic, when markets became jittery. ‘In periods like that, when liquidity is unpredictable and doing large trades difficult, market participants tend to prefer trade types that will cushion them against information leakage and minimise price impact. The safe-haven features of these order types are helpful in times of volatility.’

The sets of orders and trade types comprising the complex order suite are typically used by market participants making sizeable trades. These are primarily large institutions, such as asset managers, pension funds or insurance companies. The suite provides ‘safe-haven’ functionality for large-in-size orders, order protection and liquidity-seeking features designed to ensure market participants are able to source liquidity effectively while avoiding market impact, information leakage and opportunity costs.

Block trade (BT) volume was up 51% in 2021, peaking at R248 billion (from R164 billion in the prior year). Activity utilising this trade type recorded a CAGR of 11% over the past five years. BTs are typically used by institutional investors and have a minimum size requirement. Unlike central order book cross trades, block trades do not have the requirement of price, in that they are not limited to the best bid/offer spread.

Manqele says the JSE considered the R164 billion in trading activity achieved in 2020 as big, as that came from a 2019 base of R82 billion. However, trade utilising the central order book cross trade type jumped by 75% to R128 billion in 2021, versus R74 billion in the prior year, translating to a steep CAGR of 50% over the past five years. This trade type, also known as an ‘XT’, enables an executing member of the JSE, such as a stockbroker, with two clients on opposite sides of the trade, to execute a trade without being intercepted in the order book. This trade, which has no minimum size, cannot be hidden but is fully protected; other participants cannot interact with this trade type. However, it must be crossed within the spread linked to the visible best bid/offer. Manqele says trading using the block trade type made up about 4% of total market activity, while order book cross trades comprised about 2% of total activity. Both are up one percentage point from 2020.

Finally, off order book principal trades grew at a slower pace of 13% to R60 billion (from R53 billion in 2020). On average, the use of this trade type has declined by 19% annually over the past five years, as market participants switch to block trades.

Manqele says the JSE expects ‘growth of the complex order suite to continue, especially the use of the block trade and the order book cross trade types, as investors seek a shield against price impact and information leakage in uncertain markets’. To further support the growth of this safe-haven functionality, he says, ‘the JSE has reduced both the price point and trade cap of the complex order suite trade types and reduced the price point on the rest of the reported trades to align its pricing to central order book activity’.

By Hilton Tarrant
Image: Gallo/Getty Images