Courting high frequency traders, the London Stock Exchange is allowing non-members a direct connection to its electronic order books with some exchange controls.
So far LSE Barclays Capital, Deutsche Bank, Russian financial services group Otkritie and broker Renaissance Capital have expressed an interest in the service.
Announcement of the new sponsored access service on Monday comes the same week as the LSE and TMX Group’s shareholders vote on a planned merger. The new sponsored access service for trades executed on the LSE's own order book and Turquoise's is the latest move by the LSE to attract more business from high-frequency traders which now account for as much as fifty percent of trading on Europe’s largest exchanges. In February, the LSE switched its Turquoise and Sets platforms to the faster Millennium trading platform to make the exchange more competitive with Chi-X Europe and Bates Europe.
Fund managers use sponsored access to avoid the expense of being an exchange member and reduce the time it takes to send an order to an exchange The U,S, banned naked sponsored access in November 2011. That involves allowing direct access to a market without any pre-trade risk checks on order flow. Naked sponsored access is also not permitted in Europe.
Under the LSE’s new service, Sponsored users will pass through a set of exchange-level filters that will control the flow of traffic from 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 on the LSE and Turquoise platforms ill include FTSE 100 and FTSE 250, international order book, exchange-traded funds, and exchange-traded derivatives.
Users of the new service can connect to the LSE using ultra-low latency exchange hosting, ‘Extranex’ data transmission services and third-party network providers.
“This provides real time access to a wider range of investors and contributes to the development of more liquid and diversified order books,” said Nicolas Bertrand, head of equity and derivatives markets at the LSE. "Following the migration of the LSE and Turquoise cash markets onto Millennium Exchange, the flexibility of the system has given us greater scope for product development of this type. This initiative is part of our ongoing commitment to give greater access to our markets and to expand our product offering for investors.