SERVICE AND TECHNICAL DESCRIPTION Order book for Retail Bonds
1 Contents 1. Introduction... 3 1.1 Main Characteristics...3 1.2 Scope...4 1.3 Readership...4 1.4 Relevant Documentation...4 1.5 Enquiries and Comments...4 2. Service Overview... 6 2.1 Overview...6 2.2 Access...6 2.3 Scope...7 2.4 Trading Services...7 2.5 Order Types...7 2.6 Trading Phases...7 2.7 Price Monitoring...8 2.8 Price Conventions...8 2.9 Tick Size...9 2.10 Order Size...9 2.11 Available securities...9 2.12 Accrued Interest...9 2.13 Settlement...11 2.14 Buying-in...12 2.15 Trade Reporting...12 3. Technical Description...13 3.1 Market Structure...13 3.2 Closing Prices...14 3.3 Reference Data...14 4. Testing...15 4.1 Conformance Requirements...15 4.2 Customer Development Service...15 4.3 End to End Testing...15 Appendix A Message Versions...16 Copyright London Stock Exchange Page 1 of 18
2 Infolect TradElect X-TRM Glossary of Terms London Stock Exchange Group s market data dissemination service. London Stock Exchange Group s trading system, designed to deliver unprecedented levels of performance, reliability and scalability. London Stock Exchange Group s post-trade router Version Control Nov 2009 First version Jan 2009 Second version incorporating amendments to sections 2.3, 2.10, 2.12 and 4.2. Jan 2009 Third version incorporating amendments to section 2.2. Sep 2010 Nov 2010 Fourth version updated to reflect live service with significant amendments to sections, 1, 2.12 and 4.3 and removal of section 5. Fifth version updated for inclusion of dirty priced bonds and providing further detail on pricing conventions in section 2.7. Copyright London Stock Exchange Page 2 of 18
3 1. Introduction The Order book for Retail Bonds (ORB) is an electronic, order-driven trading service for UK government, supranational and corporate bonds that offers retail investors efficient access to an on-screen secondary market in London listed debt instruments. This new electronic order book was launched in February 2010 in response to growing demand from private investors in the UK for a cost effective and transparent mechanism for gaining access to fixed income securities. The new trading service aims to build on the success of the London Stock Exchange Group s established MOT market operated by Borsa Italiana. The DomesticMOT market, offering Italian government and corporate bonds, and the EuroMOT market, providing access to a range of Eurobonds and Asset Backed Securities (ABS), comprise the most liquid and heavily traded retail fixed income market in Europe. ORB is the first step towards offering the benefits of this market model to retail investors in the UK. ORB is not expected to impact existing wholesale bond or gilt trading and trade reporting arrangements and does not aim to change established practices in the institutional fixed income markets. The migration to Millennium Exchange for the UK cash market is scheduled to take place in 2011. ORB will not be included within Phase 1 of the migration and will continue to operate on TradElect and Infolect as detailed in this document. 1.1 Main Characteristics ORB is an electronic order-driven trading service similar to SETS, with continuous two-way pricing provided by market makers. The service is divided into two segments, one for electronically tradable gilt-edged securities (ORB Gilts) and one for other electronically tradable UK fixed interest securities (ORB Corporate and Other Bonds). These segments are offered on the London Stock Exchange Group s TradElect trading system. The trading day is made up of an initial opening auction phase followed by continuous trading until market close. There is no closing auction. Copyright London Stock Exchange Page 3 of 18
4 Where required, participants can opt to have settlement instructions submitted directly to Euroclear UK & Ireland (CREST) by the London Stock Exchange Group s post-trade router, X-TRM. 1.2 Scope This document provides an overview of ORB and outlines the key features offered by this trading service. Also included is a summary of the market structure and settlement arrangements and a technical description of the functional changes required for participation in the market. 1.3 Readership This service and technical description is intended to provide a guide for members. It will also be useful for private client brokers, Retail Service Providers, Market Data Vendors and prospective participants who may wish to begin trading on ORB. 1.4 Relevant Documentation Related documents are available on the Exchange s website, including: Guide to TradElect: TradElect Parameters Document: Technical Specification Documents: www.londonstockexchange.com/products-and-services/tradingservices/guide-to-tradelect.doc www.londonstockexchange.com/products-and-services/tradingservices/tradelect-parameters.doc http://www.londonstockexchange.com/products-and-services/technicallibrary/technical-specifications/technical-specifications.htm 1.5 Enquiries and Comments For further information in relation to technical queries, please contact your Technical Account Manager or the Technical Information Desk on +44 (0)20 Copyright London Stock Exchange Page 4 of 18
5 7797 3939. Alternatively, please e-mail the Client Technology Group on ctgroup@londonstockexchange.com. For commercial or business queries, please contact the UK Fixed Income team on +44 (0)20 7797 3921. Copyright London Stock Exchange Page 5 of 18
6 2. Service Overview 2.1 Overview London is one of the premier global venues for the primary market listing of debt securities and is the most important centre for secondary market overthe-counter (OTC) trading of international bonds. Over 10,000 debt securities are admitted to the London Stock Exchange but the majority of these securities are not electronically tradable on our systems. Instead most debt securities are available in trade reporting-only segments of TradElect. We recognise the unique nature of the wholesale bond markets and will continue to offer all existing services to meet its members trade reporting requirements. ORB was introduced to facilitate new business and to respond to demands for a transparent, liquid bond trading service where retail investors can gain exposure to fixed income asset classes. 2.2 Access Market participants that wish to sign up to this service must complete a Static Data Form, available at: Please note that Trader Group IDs used on this service must be either 8 or 11 characters. For assistance with this process participants can contact the Client Implementation Team on +44 (0)20 7797 3232 or by email at clientimplementation@londonstockexchange.com A list of market participants with access to the electronic bond trading segments is available on the London Stock Exchange website: http://www.londonstockexchange.com/traders-and-brokers/securitytypes/retail-bonds/staticdataform.pdf http://www.londonstockexchange.com/traders-and-brokers/securitytypes/retail-bonds/participant-list.xls Customer testing on our Customer Development Service (CDS) is also available. It is the responsibility of firms seeking to access the service to conduct the appropriate testing to ensure readiness for live implementation. Copyright London Stock Exchange Page 6 of 18
7 Scope The order book includes UK gilt-edged securities in the ORB Gilts segment UKGT and UK domestic fixed interest securities in the UK Corporate and Other Bonds segment UKCP. To be admitted to the electronic bond market, securities must be eligible for CREST settlement and must be supported by an electronic market maker. Straight-through-processing of order book trades is available for those who opt-in to Direct Input in CREST for settlement. ORB does not currently offer a central counterparty (CCP) model for clearing. 2.3 Trading Services ORB is an electronic order book trading model similar to SETS, with continuous two-way pricing provided by market makers. Market maker quotes have maximum spread and minimum volume requirements. Minimum volume requirements are a multiple of the lot size set for the security. Participants can enter orders to execute electronically against named market maker quotes (aggressive execution), or enter their own orders onto the order book (passive execution). 2.4 Order Types Market makers can enter named, electronically executable quotes (EQs). All market participants can use limit orders (LOs) and market orders (MOs). Hidden, iceberg and named order types are not be supported on this service. For further information on these order types and their characteristics please refer to the Guide to TradElect. 2.5 Trading Phases The trading day comprises an intial opening aution from 08:00 to 08:10 followed by continuous trading until market close at 16:30 hours. There is no closing auction. Copyright London Stock Exchange Page 7 of 18
8 2.6 Price Monitoring Price movements in securities are monitored in regard to a dynamic and static reference prices. If pricing diverges by a defined percentage away from either reference price an automatic execution suspension period (AESP) will be activated for a period of 5 minutes. Price monitoring tolerances will be determined at sector level as detailed below: Segment Code Sector Code Open auction PMP % Dynamic Price Monitoring % Static Price Monitoring % UKGT UKG1 3 3 3 UKGT UKG2 3 5 5 UKCP UKC1 3 5 5 UKCP UKC2 5 7.5 7.5 UKCP UKC3 5 15 15 2.7 Price Conventions Bonds may be priced either exclusive or inclusive of accrued interest. The default pricing convention for the order book is to quote on a clean basis, i.e exclusive of accrued interest. A small number of corporate bonds are quoted on a dirty basis, i.e. inclusive of accrued interest. These bonds can be identified by their market sector code as follows: Sector Code Sector Name Security quoted exclusive of any accrued interest UKC1 ORB CORPORATE & OTHER BONDS 1 NO - dirty UKC2 ORB CORPORATE & OTHER BONDS 2 YES - clean UKC3 ORB CORPORATE & OTHER BONDS 3 YES - clean For all ORB bonds, the price entered should be the price per 100 nominal. The trade size should be expressed in terms of nominal and not in number of units. The consideration value for a trade is calculated as the nominal multiplied by the price/100. Copyright London Stock Exchange Page 8 of 18
9 For example, a trade of 25,000 at a price of 101.50, the consideration amount would be 25,375. For clarity, the consideration amount is not calculated by multiplying the nominal amount by the traded price. 2.8 Tick Size The minimum price movement for all securities trading on ORB is 0.01. This tick size does not impact the minimum price increments available for trade reporting in gilt-edged and fixed interest securities. The granularity available for trade reports is not restricted to the tick size set for orders on TradElect. 2.9 Order Size A minimum tradable lot size is set for all securities. For gilt-edged securities in segment UKGT the minimum tradable lot is 1 nominal value. For securities in segment UKCP the minimum tradable lot size is equal to the denomination size of the bond. Orders entered must equal the minimum tradable lot size, or be a multiple thereof. 2.10 Available securities A full list of securities available to trade on ORB and associated static data is available on the London Stock Exchange website: http://www.londonstockexchange.com/download/csv/tblsebondsdownload CSV_en.csv 2.11 Accrued Interest Where order book trades are executed on a clean price, X-TRM will calculate accrued interest for these electronic transactions. Copyright London Stock Exchange Page 9 of 18
10 Accrued interest will be applied based on one of the following day count conventions: GILTS ACT/ACT ACT/ACT ACT/ACT ISMA ACT/360 ISMA 30E/360 ISMA European ACT/365 ISMA Further information on the calculation of accrued interest by X-TRM is available on the London Stock Exchange website: http://www.londonstockexchange.com/traders-and-brokers/securitytypes/retail-bonds/accrued-interest-brokers.pdf Copyright London Stock Exchange Page 10 of 18
11 2.12 Settlement Participants have two options for settlement processing on this service: Participants can opt in to Direct Input, whereby settlement of order book trades will be instructed automatically by the X-TRM post-trade router via Direct Input into CREST. Order book trade data will be fed into X-TRM which will calculate the accrued interest payable and will instruct settlement in CREST on behalf of the participant. Participants or their settlement provider must contact CREST to set up Direct Input for the relevant settlement accounts. Participants currently using Direct Input functionality within other London Stock Exchange markets (eg. SETS) will still be required to contact CREST to set up Direct Input for this new trading service. Where participants have chosen not to opt-in to Direct Input, they will have to enter settlement details (including accrued interest) into the settlement venue manually, for matching with their counterparty. The choice of settlement option implemented has no bearing on any part of the trading process, including which counterparties can be executed against. For all trades counterparty details are included in the trade report sent from TradElect immediately after the execution of a trade. Euroclear UK & Ireland (CREST) is the default settlement venue for all order book trades on ORB, therefore all participants must able to facilitate CREST settlement. Counterparties may arrange to settle order book trades in an alternative settlement venue provided that: 1) both counterparties agree post-trade to settle the security in a specified alternative settlement venue. 2) neither party to the trade is opted in to the Direct Input service. The standard settlement timetable for securities in the ORB Corporate and Other Bonds segment is T+3. In keeping with existing arrangements for giltedged securities, the settlement timetable for securities in the ORB Gilts segment is T+1. Copyright London Stock Exchange Page 11 of 18
12 2.13 Buying-in Buying in is available for electronic trades executed in securities admitted to the order book. The earliest that a request for buying in can be made is intended settlement date + 5. 2.14 Trade Reporting Trade reporting is available in all gilt-edged and fixed interest securities traded on the order book. Order book trades are trade reported automatically and are published immediately. The wholesale reporting arrangements for non-electronically traded giltedged securities and for fixed interest securities are separate from the order book and no data on trade reported business feeds into the X-TRM post-trade router. It should be noted that off order book business in instruments admitted to the Order Book for Retail Bonds will be trade reporable to Millennium Exchange only and will be published through Millennium Exchange market data feeds only. Copyright London Stock Exchange Page 12 of 18
13 3. Technical Description This section provides describes the TradElect structure and parameters which apply to ORB. 3.1 Market Structure Gilt edged-securities are available in the ORB Gilts segment (UKGT) and other UK fixed interest securities are available in the ORB Corporate and Other Bonds segment (UKCP). UKGT is split into two sectors, whilst UKCP is split into three sectors, to allow for variations in price monitoring thresholds, market maker obligations and inclusion of accrued interest. A summary of the market structure is as follows: Segment Code Segment Description Sector Code UKGT ORB Gilts UKG1 ORB Gilts 1 UKGT ORB Gilts UKG2 ORB Gilts 2 Sector Name UKCP ORB Corporate and Other Bonds UKC1 ORB Corporate and Other Bonds 1 UKCP ORB Corporate and Other Bonds UKC2 ORB Corporate and Other Bonds 2 UKCP ORB Corporate and Other Bonds UKC3 ORB Corporate and Other Bonds 3 The market configuration matrix (TIS105) includes ORB segment, sector, roles and period configurations. This document is available at: http://www.londonstockexchange.com/products-and-services/technicallibrary/technical-specifications/technical-specifications.htm Copyright London Stock Exchange Page 13 of 18
14 3.2 Closing Prices A closing price for gilt-edged and fixed interest securities admitted to the order book is calculated and disseminated to the market. This closing price is determined based on the mid-point of the bid-offer spread and serves as a reference for securities in the UK Gilts and UK Corporate and Other Bonds segments. This closing price represents only the closing price for the electronic order book and in the case of gilt-edged securities this price may vary from the Gilt-Edged Market Makers Association (GEMMA) Reference Price. 3.3 Reference Data Reference data for this service is sent down existing Service and Performance Channels via Infolect. This has been done to reduce the overall cost and lead time of configuration for this service. Reference data is sent down S04/P04 and S17/P17 whilst market data is sent down Sf1, Sf2 for Service Channels and Pf1 and Pf3 for Performance Channels. Market Status indicators are sent down S16/P16. For a list of all messages sent down these channels please refer to Appendix A. Copyright London Stock Exchange Page 14 of 18
15 4. Testing 4.1 Conformance Requirements ORB does not require any new functionality, therefore no mandatory testing is required. Any Independent Software Vendors (ISVs) or in-house software developments that do not currently support trading functionality but wish to subscribe to the service must pass a full trading conformance test. 4.2 Customer Development Service The structure for the Order Book for Retail Bonds is available on the CDS environment. Customers are recommended to make use of the CDS environment to test their internal systems prior to live implementation. More information on the CDS environment can be found on the London Stock Exchange s website 4.3 End to End Testing Participants wishing to opt in to Direct Input will be required to perform end to end testing from trading through to settlement via the X-TRM router. Direct Input customers should complete a Euroclear PAT Trailing Booking Form and submit this to the London Stock Exchange along with their Static Data Form. http://www.londonstockexchange.com/products-and-services/technicallibrary/customer/customer-testing-services.htm http://www.londonstockexchange.com/traders-and-brokers/securitytypes/retail-bonds/euroclear-pat-trailing.doc Copyright London Stock Exchange Page 15 of 18
16 Appendix A Message Versions Appendix A provides a comprehensive list of all messages sent on UK Level 1, UK Level 2, market status indicator channels and UK reference data. Service Name UK Level 1 Service/Performance Channel Sa1, Sb1, Sc1, Sd1, Se1, Sf1, Sg1, Sh1, Si1, Sj1/ Pa1, Pb1, Pc1, Pd1, Pe1, Pf1, Pg1, Ph1, Pi1, Pj1 MESSAGE TYPES THAT MAY BE BROADCAST OVER THIS CHANNEL: 5AP Average Cumulative Volumes 5AB Return Measures 5AF Alphas/Betas 5DV Cumulative Number and Volume of Trades 5EM Ex Marker Status 5FM Value Traded 5IP Idle Poll 5MH Mid High/Low 5MV Market Share top 5 5OZ Trade Report 5PP Market Share Ratio and Market Capitalisation 5PR Opening Price 5SF Best Price and Volume 5SG Announcement Message 5SK Closing Price 5TH Trade High/Low 5VO VWAP from Trades 5VW VWAP from Automatic Trades 5TW Time Weighted Average Spread 5UD Uncrossing Price and volume Copyright London Stock Exchange Page 16 of 18
17 Service Name UK Level 2 Service/Performance Channel Sa2, Sb2, Sc2, Sd2 Se2, Sf2, Sg2, Sh2, Si2, Sj2/ Pa3, Pb3, Pc3, Pd3 Pe3, Pf3, Pg3, Ph3, Pi3, Pj3 MESSAGE TYPES THAT MAY BE BROADCAST OVER THIS CHANNEL: 5CT 5EM 5IP 5MK 5OE 5OL 5OO 5OV 5OW 5QT 5SG 5SN 5SX 5UP Tradable Instrument Control Ex-Marker Status Idle Poll Market Status Information Order Deletion/Expiry/Fully Matched Temporary Period for tradable Instrument/Currency Order Details Tradable Instrument/Currency Period Change Sector Period Change Quote Update Announcement Message Quote Close Uncrossing Completed Uncrossing Price Copyright London Stock Exchange Page 17 of 18
18 Service Name Service/Performance Channel UK Reference Data S04/P04 MESSAGE TYPES THAT MAY BE BROADCAST OVER THIS CHANNEL: 5EM 5ER 5IP 5IS 5MN 5MS 5OM 5SD 5SG 5SS 5TM 5TY 5VI Ex Marker Status Equity Background Data Idle Poll Instrument Trading Data Member Role in Instrument Member in Segment Period for Market Sector Segment Description Announcement Message Sector Description Tick Size Matrix for Segment / Currency Trade Type for Segment Settlement Venue for Instrument Copyright London Stock Exchange Page 18 of 18
19 Service Name Service/Performance Channel Market Status Indicators (Exchange) S16/P16 MESSAGE TYPES THAT MAY BE BROADCAST OVER THIS CHANNEL: 5CT 5IP 5MK 5OL 5OV 5OW 5SX Tradable Instrument Control Idle Poll Market Status Information Temporary Period for tradable Instrument/Currency Tradable Instrument/Currency Period Change Sector Period Change Uncrossing Completed Service Name Service/Performance Channel Market Reference Data S17/P17 MESSAGE TYPES THAT MAY BE BROADCAST OVER THIS CHANNEL: 5HM 5HV 5IP 5MR 5MT 5PE 5PU 5PM 5SV Period Handling for Market Mechanism Type Period Handling for Validity Type Idle Poll Member Details Market Description Period Extensions Period Rules Period Rules for Market Mechanism & Validity Type Settlement Venue Copyright London Stock Exchange Page 19 of 18
Copyright November 2010 London Stock Exchange plc. Registered in England and Wales No. 2075721. London Stock Exchange plc has used all reasonable efforts to ensure that the information contained in this publication is correct at the time of publication, but shall not be liable for decisions made in reliance on it. London Stock Exchange and the coat of arms device are registered trade marks of London Stock Exchange plc. London Stock Exchange 10 Paternoster Square London EC4M 7LS Telephone: +44 (0)20 7797 1000 Copyright London Stock Exchange Page 20 of 18 www.londonstockexchange.com