The London Stock Exchange (LSE) has launched a new sponsored access model for its UK cash market that passes the responsibility for managing order flow to the exchange.
From the end of June 2011, non-members will be able to access the exchange directly using the direct technical connection of an LSE member, also referred to as a sponsoring firm. However, instead of passing orders through the order management system of the sponsoring firm, orders will pass through a series of validation checks provided by the exchange that are managed in real time.
Brokers will therefore only be responsible for validating the status of their end clients.
According to the LSE, the upgrade of its trading engine to a new Millennium IT-supplied platform earlier this year made it possible to implement risk controls at the exchange level. The new service will also ensure that clients using sponsored access do so in a consistent manner.
Using sponsored access arrangements, traders can reduce the time it takes to send an order to an exchange, enabling faster trade execution. Risk management for sponsored access is currently under the spotlight across the globe, particularly in the US, which banned naked sponsored access, which involves allowing direct access to a market without any pre-trade risk checks on order flow, in November 2010. In Europe, naked sponsored access arrangements are not permitted by market operators or regulators.