The heads of several exchanges and trading platforms trading or planning to trade UK stocks have formed a working group to create an alternative price reference mechanism to the one offered by the London Stock Exchange (LSE), the UK’s primary equity-trading market.
The platforms involved include exchanges PLUS Markets, Nasdaq OMX and Börse Berlin Equiduct Trading, and multilateral trading facilities Turquoise and Chi-X Europe. The initiative began earlier in the year around March/April time.
“The idea is that we are going to try and put all the information into a common format, disseminate that common format via a central point, and
make sure the information is distributed as widely as possible around the market,” Peter Randall, CEO, Chi-X Europe, told theTRADEnews.com.
It is hoped that all trading venues, including the LSE, will be involved. “Ultimately, the initiative will put pressure on the incumbents to join in as well, because people will want to see what their prices are,” said Randall.
He adds that the initiative is already at a fairly advanced stage. “We are talking about the terms of the intellectual properly arrangements, who is going to do what, and the commercial arrangements,” he said.
In the US, there is a ‘consolidated tape’ of all trades, which firms use as a pricing benchmark. If one venue goes down, traders can simply refer to the prices being reported on the others. But in the UK, there is no such mechanism, and so traders rely heavily on the LSE as a source of pricing information.
This fact was underscored on 8 September when the LSE suffered a seven-hour outage. Instead of shifting to alternative trading platforms, such as Chi-X and Turquoise, many firms refrained from trading altogether because of the lack of an LSE reference price. Some banks’ smart order routers also did not send orders to alternative venues because they used the LSE as a pricing yardstick to measure other venues against.
Although the initiative was not prompted by the LSE outage, as work began several months before, it highlighted the need for an alternative price formation mechanism, according to Randall
“The LSE outage did not really give the initiative added impetus; it had got legs anyway,” said Randall. “But it was a further reminder of why it is so important.”