London Stock Exchange launches first daily intra-day auction

At noon on Monday, the London Stock Exchange completed its first daily intra-day auction, a two-minute pause in trading of the largest shares on the exchange to allow investors to enter, modify and delete orders without automated trading.

After extensive consultation with City firms, the LSE introduced the measure in order to try and attract more trading in the large blocks of shares that institutions have increasingly been trading via off-exchange networks called “dark pools”.

Dark pools, which are run by banks including Barclays, Credit Suisse, Bank of America, Goldman Sachs and Morgan Stanley, aim to reduce institutions costs of trading by allowing very large trades to be completed at prices that are not known until the trade is completed, which is meant to restrict access to undesired market participants such as high frequency trading firms.

Under the LSE's new daily intra-day auctions, continuous trading of all SETS equities, the largest and most liquid shares listed on London Stock Exchange, is paused for two minutes to allow the whole market the opportunity to take part in the auction process.

Monday's debut saw the FTSE 100 index frozen at a price of 6,188.37 during the two minutes, before reaching 6,194.75 after the resumption of trading, with the LSE reporting that 61 member firms traded a total of 500 stocks worth just under £11m.

These auctions will now take place every trading session at midday.

At the beginning of the auction call at 1200, all orders that have been submitted for that specific auction will be injected immediately, allowing two minutes for orders to be entered, modified and deleted during an auction call, but with no automated execution taking place.

Throughout the entire period, the LSE will only report the most up-to-date indicative auction uncrossing price and size and not the full orderbook.

At the end of the auction period, the balance of buy and sell orders will be used to calculate the uncrossing price and continuous trading will recommence.

“This is a very significant change to the trading day, following a detailed consultation with market participants," said Brian Schwieger, the LSE's head of equities.

"The auction will allow participants to place orders in a truly confidential, yet price-forming environment via a well understood mechanism. Its introduction is in direct response to demand from buy-side participants for neutral, infrastructure-led solutions for MiFID II friendly alternatives to dark pools and a midday benchmark.”