London Stock Exchange Launches Mifid Offering

LONDON—The London Stock Exchange (LSE) is offering a new range of trading services to address the E.U.'s Markets in Financial Instruments Directive (Mifid), based around its new TradeElect platform, say LSE officials.

The new services are designed to provide member firms with alternatives to systematic internalization in order to help preserve the existing market model, says Danielle Ballardie, product manager for Mifid at the LSE.

London has a "strong advantage" because Mifid "mirrors the open and competitive environment" that the LSE has grown under, says Martin Graham, director of markets for the LSE.

The exchange's new Mifid-related services should help to protect that environment, while at the same time providing member firms with a "one-stop shop" for meeting Mifid obligations, says Ballardie.

One such obligation relates to publicly posting non-marketable limit orders. At present, a number of small-cap stocks trade on a market model that doesn't support limit orders. Over the course of this year, the LSE plans to migrate approximately 600 stocks to the new Setsqx platform for less liquid stocks, says Hugh Brown, head of product development in market services.

The migration is expected to happen in two phases. The first phase includes 163 main market and 64 alternative investment market (AIM) stocks traded on the order-driven Seats Plus platform, which will move over in the second quarter. The second phase, due in the fourth quarter, will include all of the remaining main-market securities trading on the LSE's Seaq platform for less liquid stocks.

Firms that internalize orders in liquid stocks are being offered a new market-making function on the Sets market, the LSE's electronic order book for the most liquid stocks, to advertise their prices. The market-making function should provide an alternative to being a systematic internalizer, says an LSE spokesperson.

In taking up the service, firms will still be able to trade away from the order book, but would be subject to exchange rules, such as maximum spread requirements and minimum order size, says Ballardie. The maximum spread requirement currently suggested is 5 percent, she says.

The exchange is also offering products and services that will help firms comply with Mifid's best-execution requirements. These include a 10-year tick history database and data-mining tools that can help prove best execution. LSE subsidiary Proquote launched a similar solution last year (Inside Market Data, Nov. 27, 2006).

For liquid stocks that are traded on exchanges in other European countries, the LSE will also offer a European quoting service that allows firms to indicate the prices at which they would trade. This service "wouldn't be available for electronic execution," says Ballardie, who also says that registering as a systematic internalizer and using the exchange's Mifid services wouldn't be mutually exclusive.