(Bloomberg) — London Stock Exchange Group Plc plans to add daily trading breaks as part of a strategy to woo the largest buy and sell orders.
Under the plan to begin next year, LSE will pause the market for two minutes each day at midday and switch stock trading to auctions, according to a company statement. Auctions are already held at the beginning and end of each session as a way to balance the supply and demand that balloons at those periods. Like those, the midday procedure will hide from public view the size of individual orders.
By only displaying to the market the total number of shares available to buy and sell, the bourse will enable big asset managers and pension funds to transact large blocks of shares without giving away their intentions, Brian Schwieger, said in a phone interview.
The midday market pause may help the bourse attract additional block trades once new European Union rules come into force in 2017. The regulations, part of a swathe of reforms called MiFID II, impose caps on the amount of trading that can take place on dark pools. Some banks present dark pools, or private markets, as venues where investors can transact large blocks without disclosing their prices.
Roughly a third of the FTSE 350 Index will be affected by those caps, Schwieger said.
LSE is proposing to include more than 900 stocks in the lunchtime auction. Schwieger said large investors had twice asked for an auction during the middle of the day. Deutsche Boerse AG has held one at 1 p.m. Frankfurt time since 1998.
Auction mechanism are fantastic tools to aggregate liquidity, particularly from investors who are looking to trade size, trade in blocks, Andy Nybo, the head of derivatives research at New York-based Tabb Group LLC, said in a phone interview. I would suggest that LSE is looking at this as a tool to attract that chunky liquidity.
