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A Guide to London Stock Exchange Trading Services for Equity Securities Contents A guide to London Stock Exchange trading services for equity securities Contents Background 01 Trading services for equity securities 03 SETS 04 SETSqx 06 SEAQ 08 Criteria and process for allocating securities to trading services 09 New issuers 10 Glossary of terms 11 Appendix: Criteria for the SETS and SETSqx trading services 12 Background This guide provides an overview of the trading services that London Stock Exchange operates for the trading of equity securities. The criteria £156m and process for allocating securities to London Stock Exchange trading AIM average daily services are also explained. turnover value 2013 This guide is therefore relevant to FTSE All Share, FTSE Fledgling, AIM and smaller Main Market securities not in an index. Smaller securities are defined as those outside of the FTSE 350 index, excluding ETFs and International Order Book securities. 144 admissions to AIM and the Main Market in 2013, raising £11.9 billion 2,388 companies (1087 on AIM; 1301 on Main Market) Smaller securities* 2013 turnover value – £250.6 billon Smaller securities average monthly value traded – £20.9 billion Smaller securities average daily value traded – £991 million * Smaller securities defined as equity securities excluding FTSE 350, EQS, ITR, IOB and IBSG. For more information on trading segments please see Millennium Exchange™ Business Parameters which can be accessed at www.lseg.com/tradingservices £100 m FTSE Small Cap average daily turnover value 2013 01 A guide to London Stock Exchange trading services for equity securities S T R Q P A O N M L K All equity securities: B J Top 20 sectors by number of companies I H C G D F E 420 177 170 169 152 118 96 A: Equity B: Data labels C: General D: Support services E: Oil and F: Software and G: Real estate investment financials gas producers computer services investment instruments and services 91 76 56 54 52 51 49 H: Media I: Travel and leisure J: Pharmaceuticals K: Electronic L: Industrial M: Debentures N: General retailers and biotechnology and electrical engineering and loans equipment 48 48 45 43 38 37 O: Banks P: Food producers Q: Technology R: Construction S: Healthcare T: Industrial hardware and and materials equipment metals equipment and services 02–03 A guide to London Stock Exchange trading services for equity securities Trading services for equity securities Equity securities are found on one of three All three of London Stock Exchange’s trading services different trading services operated by London operate within the Rules of the London Stock Exchange. Stock Exchange. The Rules of the London Stock Exchange can be found at www.londonstockexchange.com/traders-and-brokers/ 3 The three trading services operated by London Stock rules-regulations/rules-regulations.htm trading services Exchange for Main Market and AIM securities are: Trades executed on SETS or in SETSqx auctions and trades SETS reported to London Stock Exchange are subject to the Rules A full electronic order book with integrated Market Maker of the London Stock Exchange. executable quotes and Central Counterparty Clearing, The applicable market making rules are set out in permitting anonymous pre- and post-trading paragraphs 4000–4510 of the Rules of the London Stock SETSqx Exchange at www.londonstockexchange.com/traders- A trading service which combines a continuous quote- and-brokers/rules-regulations/market-making/ driven market (supported by Market Makers) with four market-making.htm electronic auctions (8.00am, 11.00am, 3.00pm and 4.35pm) The section on obligations of Market Makers in order-driven which are open to all market participants securities (rules 4100–4110.5) covers trading services where SEAQ registered Market Makers use executable quotes (EQs) A trading service used for AIM and some fixed income to display their quote. securities whereby at least two competing registered Market The section on obligations of Market Makers in quote-driven Makers provide non-electronic Market Maker quotes. securities (rules 4200–4334) covers trading services where registered Market Makers use firm quotes to display their quote. Further information on the criteria for trading service inclusion and the process for trading service selection can be found in the section on criteria and process for trading service selection on page 09 of this document. C A Equity securities by trading service B 881 1056 586 A: SETS B: SETSqx C: SEAQ * as of February 2014 02–03 A guide to London Stock Exchange trading services for equity securities SETS SETS is London Stock Exchange’s flagship electronic order book, trading FTSE 100, FTSE 250, FTSE Small Cap index constituents, Exchange Traded Funds and Exchange Traded Products 881 as well as liquid AIM, Irish and London Standard Listed securities. securities on SETS Advantages of SETS Features of SETS — Highly accessible to trading participants — Underpinned by the provision of Market Maker — Order book users can place order types such as electronically executable quotes throughout the trading ‘limit’ and ‘immediate or cancel’ directly onto the day, providing liquidity in at least one Exchange Market order book, allowing them to participate directly Size (EMS) in the price formation process — Where there are no matched closing auction orders, — Provision of the closing auction and the follow-up the closing price is set by the mid of the Best Bid Offer Closing Price Crossing Session allows order book — Optimal trading conditions exist where the order book users the opportunity to trade at the day’s actual is a mixture of Market Maker executable quotes and other closing price. anonymous, displayed orders. Therefore: – a new stock to SETS must have the support of at least one Market Maker prepared to provide an EMS of at least £2,500; F A – a maximum spread regime exists for Market Maker E bids and offers; and – stocks that would typically be solely dependent on Market Maker executable quotes for liquidity provision are not suitable for inclusion on SETS. — London Stock Exchange provides a full off-book trade D reporting service for executions bilaterally agreed away from the order book — Customers who prefer that their off-book executions are Breakdown of equity not subject to the Rules of the London Stock Exchange securities on SETS B can still use our MiFID OTC and SI Trade Reporting service for the relevant securities — Where a trade in an AIM security is executed outside of the Rules of London Stock Exchange, the trade must instead be executed in accordance with an AIM primary registered organisation or an AIM secondary registered organisation. An example of this would be where a trade is executed off order book under the rules of another market and reported to that market. C 102 253 267 177 11 71 A: FTSE 100 B: FTSE 250 C: FTSE Small Cap D: AIM E: Irish F: Other Equity 04–05 A guide to London Stock Exchange trading services for equity securities SETS screen Cumulative volume traded Sector/segment of the on and off order book during LSE trading system where Volume weighted the current trading day the stock is traded average price VWAP for automated trades Last trade price Volume of shares traded automatically (on book) Yellow strip: best buy/sell prices and corresponding volume and number of orders at that price Market Maker executable quotes 04–05 A guide to London Stock Exchange trading services for equity securities SETSqx SETSqx (Stock Exchange Electronic Trading Service – quotes and crosses) is a trading service specifically designed for securities less liquid than those traded on SETS. SETSqx combines a periodic electronic auction book with standalone non-electronic quote-driven 1056 market making providing guaranteed liquidity in at least one Exchange Market Size securities on SETSqx (EMS) throughout the trading day. Advantages of SETSqx Features of SETSqx — Suitable for less liquid instruments that are more — No Market Maker maximum spread reliant on Market Maker quotes — Auctions are scheduled at 8.00am, 11.00am, — Investors can participate in the closing price formation 3.00pm and 4.35pm. Electronic orders can be named process by trading in the closing auction or anonymous on submission and, for most securities, — Provides investors the ability to access prices in less order book executions will be centrally cleared liquid securities — Provides investors a choice of being able to trade — Investors have a choice of trading in either the against Market Maker firm quotes, or submitting quote-driven or order book auction service. orders into the auctions — Where there are no matched closing auction orders, the closing price is set by the mid of the Market Makers collective Best Bid Offer — Trades reported to London Stock Exchange subject to its rules benefit from the framework underpinning the Market Maker obligations and must not be on terms worse than any individual Market Maker quote after taking into account relevant trading, settlement and clearing costs, as laid out in Rule 3081 of the Rules A of the London Stock Exchange — Customers who prefer that their off-book executions are not subject to the Rules of the London Stock Exchange can still use our MiFID OTC and SI Trade Reporting service for the relevant securities Breakdown of equity — Where a trade in an AIM security is executed outside securities on SETSqx of the Rules of London Stock Exchange, the trade must instead be executed in accordance with an AIM primary registered organisation or an AIM secondary registered organisation. An example of this would be where a trade is executed off order book under
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