(Bloomberg) — London Stock Exchange Group Plc is encouraging brokers to place hidden orders for large blocks of shares on its public market as it prepares for an impending overhaul of European financial regulations.
Traders will be able to place their orders on the LSEs main market without displaying the price or the size of the transaction, the stock-exchange operator said in a statement on Wednesday. Dark pools got their name because they only reveal prices after the trades have taken place.
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The European Unions MiFID II package of rule changes, which comes into force at the start of 2017, places limits on dark-pool trading for all but the biggest transactions.
By allowing dark trading on its lit market, LSE is greatly increasing the liquidity available to firms that want to trade without revealing their intentions to the rest of the market. The main London market accounts for 12.3 percent of all European share trading so far this month, while the dark order book for Turquoise, which LSE owns with a group of banks, makes up 1.2 percent of the regions trading, according to data compiled by Bats Global Markets Inc.
Firms that want to trade in the dark will probably place an order for the same shares on both LSE and Turquoise, said Brian Schwieger, the stock-exchange operators head of U.K. equity markets. That will enable traders to match their orders in both lit and dark markets, giving them a greater chance of executing bigger trades. The revamped order type that LSE is using to lure dark trades is called the hidden mid-price pegged order. It will be available to investors from November 2.
This is the third element of LSEs strategy to enable firms to carry out block trades on its markets. It will introduce a midday auction on its main market from next February and it has already started Turquoise Block Discovery.
