Bringing new flexibility to orders

Transcription

1 Bringing new flexibility to orders Cross Order and Block Trade Facilities functionalities on cash markets

2 Cross Order and BTF Overview Cross Orders and Block Trade Facilities (BTF) are two new types of orders now available on Borsa Italiana s Millennium Exchange platform. They enable intermediaries to execute contracts with specified counterparties, and offer wide flexibility in terms of order size and transaction pricing. The migration of cash markets onto the Millennium Exchange platform opened the way to the introduction of Cross Order and BTF functionalities, which identify a transaction that has been bilaterally arranged by the counterparties and then executed on the market. The factors that differentiate Cross Orders from BTF are size and contract price. More specifically, a Cross Order may be executed whatever the size (no minimum required), but the transaction price must fall within the best bid-ask range in the market (bounds included). A BTF can be executed only for sizes above a minimum threshold, but the price may differ from the market s best bid-ask by a predefined percentage set by Borsa Italiana. If the transaction is completed within a single intermediary, it is identified as an Internal Cross Order/BTF, while if it is negotiated or identified by two different intermediaries it is called Committed Cross Order/BTF. Cross Orders and BTF are available on the following markets: MTA (including the STAR and MTA International segments), SeDeX, ETFplus, TAH, MOT, ExtraMOT, Aim Italia/Mercato Alternativo del Capitale. They enable intermediaries to execute contracts with specified counterparties, and offer wide flexibility.

3 The applied transaction fee is modest and independent from order size Benefits Cross Order and BTF functionalities combine the benefits of negotiation privacy and flexibility, typical of a contract between parties, with those of an on-exchange executed transaction, as they: Guarantee the certainty of execution at the price and quantity agreed with the counterparty Function as contracts executed on-exchange Are guaranteed by Cassa di Compensazione e Garanzia 1 Enable the automatic fulfilment of Trade Reporting requirements Are subject to the transaction fees applicable for on-book contracts, which are particularly favourable for large size trades. For example, if we compare a contract executed offmarket at a fixed bps-based cost with a Cross Order/BTF traded by Borsa Italiana s member firm, the transaction cost difference grows proportionally to the trade size (Charts 1 and 2). Certainty of execution at the price and quantity agreed. Example: Transaction costs based on the contract value Chart 1 Price in Chart 2 Price in Bps Countervalue in Countervalue in 1 For eligible markets. More information available on Note (Charts 1 and 2) Cross Orders and BTF are price based on a euro-denominated trading fee subdivided into 4 different buckets depending on the contract size. If we compare the maximum fee applied by Borsa Italiana s markets for Cross Orders and BTF with fees that could be applied on OTC transactions, generally defined in basis points, Cross Orders and BTF report a better cost effectiveness. For Borsa Italiana we considered the pricing applied to a Cross Order or BTF on stocks executed by a participant belonging to pricing package 1. (More information on trading fees can be found at Key Over the counter Borsa Italiana 01 Cross Order and BTF / Bringing new flexibility to orders

4 Specifications An order tailored to every size 1 Only principal vs Agency and Agency vs Agency are admitted. 2 As established in the Guide to Parameters for trading on the regulated markets organised and managed by Borsa Italiana borsaitaliana/regolamenti /guide/guide.htm 3 In markets where these types of order are admitted. Cross Order Cross Orders enable the execution of contracts whose price falls within the best visible bid price and the best visible ask price range (bounds included) at the time of entry into the trading system. The system manages Cross Orders, either Internal or Committed, as follows: Internal Cross once parameters have been checked and given the green light, the system matches two trades entered by the same intermediary 1 and the contract is executed without impact on the order book. Committed Cross the two sides of the Cross Order are entered by two different counterparties, which are associated by the system through the same ID (CrossID). Once parameters have been checked and given the green light, the contract is executed without impact on the order book. Trading characteristics and operating rules of Cross Orders: The price must be a tick multiple The quantity must be a multiple of the minimum trading lot They are admitted only during continuous trading (not during auctions) They update the price of the last contract They can trigger automatic suspensions 2 They can trigger stop orders entered into the system 3 They do not contribute to the calculation of the reference price and VWAP They contribute to statistics updates (contracts and turnover). Traditional Order Borsa Italiana contract type Intermediary 1 Intermediary 2 Buy Sell Order book Contract Cross Order Intermediary Principal Agency Buy Sell MIT trading platform Internal cross contract Intermediary 1 Intermediary 2 Buy Sell MIT trading platform Committed cross contract Cross Order and BTF / Bringing new flexibility to orders

5 Price parameters and minimum quantities Block Trade Facilities (BTF) BTF can be executed at a price falling within the best bid price minus a defined percentage and the best ask price plus the same percentage (bounds included), and for a predefined minimum quantity. Market Quantity Variation from best prices MTA and TAH Between 50,000 and 500,000 based on the average daily trade turnover 1 SeDeX Greater or equal to 60*EMS 2 10% 3.5% for shares making up the FTSE MIB index 7.5% for shares other than FTSE MIB index ETFplus Greater or equal to 4*EMS 2% for bond ETFs 2.5% for equity ETFs and structured non-leveraged ETFs 5% for structured leveraged ETFs, non-leveraged and double leveraged ETC/ETNs 7.5% for triple leveraged ETC/ETNs MOT and ExtraMOT AIM Italia/Mercato Alternativo del Capitale Greater or equal to 40*EMS (MOT) Greater or equal to 8*EMS (ExtraMOT) Greater or equal to 5*EMS 10% 0.75% for government bonds 1.5% for other bonds Trading characteristics and operating rules of BTF: They can be entered as Internal and Committed Block Trades Their price must be a tick multiple The quantity must be a multiple of the minimum trading lot They are admitted only during continuous trading (not during auctions) They do not contribute to the update of the last traded price They do not contribute to the calculation of the reference price and VWAP They contribute to statistics updates (contracts and turnover). Example: price range within which it is possible to execute a Cross or a BTF Buy bid Sell 1 ask Quantities as per Table 2, Annex 2, of (EC) Regulation n. 1287/ Exchange Market Size (EMS) identifies quantity obligation of the specialist. For more information see the instruction accompanying the Rules of Borsa Italiana. Cross Order (price within the best bid-ask bounds included) BTF [price within the range: Bid X% / Ask + X% (X% set at market/segment level)] Cross Order and BTF / Bringing new flexibility to orders

6 Trading interface Input the data, execute the contract Using Cross Orders and BTF is simple and quick. Committed BTF Input data: Price: outside the best bid-ask (in compliance with the maximum range). The price must be a multiple of the applicable tick Quantity: above the minimum threshold Side: sell for the seller and buy for the buyer Counterparty: the seller specifies the memberid of the buyer and vice versa Capacity: it may be agency or principal for both counterparties CrossID: this is an ID agreed by the two counterparties that enables the system to identify the two BTF legs Order type: BTF After receiving the BTF order from the first counterparty, the system looks for an order on the opposite side with the same quantity, price and CrossID. After receiving the second leg, the system verifies that all price and quantity parameters are complied with. If the check is positive, the BTF contract is executed and the related quantity and price are reported to member firms. Internal Cross Order Input data: Price: within the best bid-ask range (bounds included). The price must be a multiple of the applicable tick Side: select buy and sell together Counterparty: there is no need to specify this, as in this case the order is executed internally by the intermediary Capacity: all combinations except principal vs principal CrossID: there is no need to specify this in an Internal Cross Order Order type: Cross Once the intermediary has entered the Cross Order, the system verifies that the price falls within the best bidask range (bounds included) at the time of receipt. If the check is positive, the contract is executed and reported to member firms. Otherwise, the order is rejected and the intermediary will have to enter a new Cross Order. 04 Cross Order and BTF / Bringing new flexibility to orders

7 Cross Order and BTF functionalities combine the benefits of negotiation privacy and flexibility with those of an on-exchange executed transaction.

8 Contacts Borsa Italiana S.p.A. Telephone This document contains text, data, graphics, photographs, illustrations, artwork, names, logos, trademarks, service marks and information ( Information ) connected with Borsa Italiana S.p.A. ( Borsa Italiana ). Borsa Italiana attempts to ensure Information is accurate, however Information is provided AS IS and on an AS AVAILABLE basis and may not be accurate or up to date. Information in this document may or may not have been prepared by Borsa Italiana but is made available without responsibility on the part of Borsa Italiana. Borsa Italiana does not guarantee the accuracy, timeliness, completeness, performance or fitness for a particular purpose of the document or any of the Information. No responsibility is accepted by or on behalf of Borsa Italiana for any errors, omissions, or inaccurate Information in this document. The publication of this document does not represent solicitation, by Borsa Italiana, of public saving and is not to be considered as a recommendation by Borsa Italiana as to the suitability of the investment, if any, herein described. No action should be taken or omitted to be taken in reliance upon Information in this document. We accept no liability for the results of any action taken on the basis of the Information. January 2014 Borsa Italiana S.p.A. London Stock Exchange Group All rights reserved. Borsa Italiana S.p.A. Piazza degli Affari, Milano (Italia)