The London Stock Exchange Group (LSEG) has introduced exchange-level risk controls on its London Stock Exchange and Turquoise trading platforms, as part of a new ”sponsored access’ model.
The sponsored access service allows non-members a direct connection to LSEG’s electronic order books using the trading codes of a sponsoring firm.
Sponsored users will pass through a set of exchange-level controls that will intermediate the flow on behalf of the sponsoring firm. Brokers will only be responsible for validating the status of their end-clients. Sponsoring firms will be provided with a post-trade receipt, enabling them to keep track of their trading activity.
Supported stocks will include FTSE 100 and FTSE 250, international order book, exchange-traded funds, exchange-traded derivatives and all central counterparty cleared securities.
Users will also have a choice of connectivity options, including ultra-low latency exchange hosting, ”Extranex’ data transmission services and connection via third-party network providers.
Sponsored access arrangements are widely used to reduce the time it takes to send an order to an exchange, enabling faster trade execution. In November 2011, US regulators banned naked sponsored access, which involves allowing direct access to a market without any pre-trade risk checks on order flow. In Europe, naked sponsored access arrangements are not permitted by market operators or regulators.
Firms that have expressed interest in the LSEG service include Barclays Capital, Deutsche Bank, Russian financial services group Otkritie and broker Renaissance Capital.