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SGX to scrap block trades provision

Wednesday 4 January 2012 – by Karina Whalley

The Singapore Exchange wants to scrap a provision which allows large orders of securities and derivatives trades to be gradually released into the market.

The so-called “engine-level iceberg order functionality” was created for investors who trade in large quantities, but the SGX says it is little used as there are already alternative execution tools available for block trades.

“The continued provision of the engine-level iceberg order is of little benefit to the market,” said the SGX in its public consultation released on Tuesday.

“Its removal is expected to have insignificant effect on the market [and] will also enhance transparency in the opening and closing routines, as well as, in the calculation of the equilibrium price,” it argued.

The SGX says that there will be less confusion for market participants because it will remove the “hidden volume” of trades.

The iceberg order functionality was intended to limit “adverse market impact” by allowing only parts of large orders of trades to be displayed and available for execution at any one time.

However, brokers’ order management systems as well as automated execution desks that are used for making block trades can also “splice” them into smaller orders before they enter the trading engine. The Singapore Exchange believes traders are using their own systems for doing this.

In November last year, engine-level iceberg orders accounted for less than 0.0001 per cent of the total number of orders made in both the securities and derivatives markets and about 0.001 per cent of total trade volume.

The consultation paper is open to the public for comment until 16 January and, subject to approval by the Monetary Authority of Singapore, the Exchange wants to have the provision abolished within the next three months.

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