The London Stock Exchange (LSE) has said it will introduce hidden limit orders on its trading platform on 16 March 2009, and has revealed more details about future hidden order functionality.
The new order type, first announced on 11 December last year, will allow market participants to enter limit orders on the LSE’s SETS order book without displaying price or volume to other participants. Hidden orders will be able to interact with both displayed orders and other non-displayed orders. Testing on the exchange’s Customer Development Service is already available.
In addition, the LSE plans to introduce hidden pegged orders this summer via its new FIX 5.0 interface. This will allow market participants to align their order with either the best bid, best offer or mid-price available on the market. Orders can also be priced at a differential to the best bid or offer price and will be able to interact with both displayed and hidden liquidity. According to the exchange, this will increase the likelihood of execution.
Hidden orders will have to comply with MiFID’s large order threshold. This requires trading venues to implement minimum order sizes for hidden orders, based on the average daily turnover and market capitalisation of a stock, as defined by the Committee of European Securities Regulators. For non-MiFID securities – those on the LSE’s international order book, exchange traded funds or exchange traded commodities – the exchange has set its own order size limits, also pegged against average daily turnover.
From the summer, participants will also be able to stipulate a minimum order size against which their hidden orders will execute. This will deter small limit orders pinging a participant’s hidden orders and therefore prevent information leakage and gaming.