Market Model for the Electronic Trading System of the Irish Stock Exchange: ISE Xetra

Market Model for the Electronic Trading System of the Irish Stock Exchange: ISE Xetra Xetra Release 16.0 Effective Date: 30 November 2015 Irish Stoc...
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Market Model for the Electronic Trading System of the Irish Stock Exchange: ISE Xetra Xetra Release 16.0

Effective Date: 30 November 2015

Irish Stock Exchange

Market Model for the Electronic

30 November 2015

Xetra Release 16.0

Trading System: ISE Xetra

Page 1 of 87

Contents

1

Introduction

6

2

Fundamental Principles of the Market Model

7

3

Products and Segmentation

10

4

Access to ISE Xetra

11

4.1

Allocation of Special Trading Licences

5

11

Provision of Additional Liquidity by Market Makers

5.1

Market Maker Tasks and Duties

6

12 12

Trading Phases

13

6.1

Pre-Trading Phase

13

6.2

Main Trading Phase

13

6.3

Post Trading Phase

13

7

Trading Models

15

7.1

Continuous Trading with Auctions

15

7.1.1

Opening Auction

16

7.1.2

Continuous Trading

18

7.1.3

Intraday Auctions

19

7.1.4

Closing Auction

20

Several Auctions or Single Auction

21

7.2 8

Forms of Trading

22

8.1

Auctions

22

8.2

Continuous Trading

22

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Trading System: ISE Xetra

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8.3

Off Order book Trading 8.3.1

23

Trade Indicators on Xetra

8.4

23

Characteristics of Off order book Trades on ISE Xetra

24

8.4.1

Trade Flags on ISE Xetra

25

8.4.2

Off order book Trade Entry on ISE Xetra

25

8.4.3

Off order book Trade Confirmation on ISE Xetra

25

8.4.4

Off order book Trade Deletion and Amendment on ISE Xetra

26

9

Order Types

27

9.1

Basic Types

27

9.2

Additional Order Types

27

9.2.1

Midpoint Orders

27

9.2.2

Stop Orders

28

9.2.3

Iceberg Orders

29

9.2.4

Hidden Orders

29

9.3

Cross Request

30

9.4

Self-Match Prevention

30

9.4.1

Overview

30

9.4.2

Self-Match Prevention Process

31

9.5

Execution Conditions for Continuous Trading

31

9.6

Validity Constraints

32

9.7

Trading Restrictions

32

9.8

Handling of Orders in Case of Events affecting Prices

33

9.9

Modifying Orders

33

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Market Model for the Electronic

30 November 2015

Xetra Release 16.0

Trading System: ISE Xetra

Page 3 of 87

10

Safeguards in Auctions, Continuous Trading and Off Order Book Trading 34

10.1

Volatility Interruptions

34

10.2

Volatility Interruption during Auctions

35

10.3

Volatility Interruption during Continuous Trading

36

10.4

Market Order Interruption in an Auction

37

10.5

Price Validation of off order book Trades

38

10.6

Volume Validation of off order book Trades

39

11

Illustration of Price Determination Processes

11.1

40

Auctions

40

11.1.1

Basic Matching Rules

40

11.1.2

Matching Examples

42

11.2

Continuous Trading

45

11.2.1

Basic Matching Rules of the Order Book

45

11.2.2

Matching Examples

49

11.2.2.1

Examples for Basic Matching Rules in Continuous Trading

49

11.2.2.2

Further examples

62

11.2.3

Basic Matching Rules for Self-Match Prevention

75

11.2.4

Basic Matching Rules for Midpoint Orders

76

11.2.5

Matching Examples for Midpoint Orders

78

Determination of the Official Closing Price on the ISE

84

12 12.1

Relevant Definitions

84

12.2

Example of Official Closing Price Determination

85

13

ISEQ Indices and Return Indices

86

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Market Model for the Electronic

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Trading System: ISE Xetra

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13.1

ISEQ Total Return Indices Overview

86

13.2

Calculations

87

13.3

Corporate Actions

87

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Market Model for the Electronic

30 November 2015

Xetra Release 16.0

Trading System: ISE Xetra

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1

Introduction The electronic trading system Xetra was developed for the German market in 1997 by Deutsche Börse AG. In June 2000, the Irish Stock Exchange plc (the ISE) introduced electronic trading on ISE Xetra, which is based on the functionality of Xetra but has been adapted specifically for the Irish market. Since its introduction Xetra has been enhanced through numerous releases adding functions and capabilities according to market needs. ISE Xetra is located on a separate back end within the overall Xetra platform. This enables ISE members to benefit from developments in the Xetra infrastructure in response to market and other trading developments while also allowing the introduction of changes that are specific to the ISE market such as the trade flags for off order book trade reports; or opt out of certain functionality such as Xetra Best. It also enables the ISE to have a trading calendar independent of that of Xetra Frankfurt. The market model for trading on Xetra and ISE Xetra is order driven. This market model defines the principles of order matching and price determination in the ISE Xetra order book trading system and the functionality for off order book trade reporting of order book securities. This includes priority of orders, the different order types and trading restrictions available, the safeguards contained within the system and the functions of market makers as well as the type and scope of information made available to market participants during trading sessions. This market model document serves as a detailed guide for member firms to the trading principles of equities and ETFs on ISE Xetra and complements the Rules of the Irish Stock Exchange (hereafter referred to as the Rulebook) and the Market Parameters. Member firms should also refer to the Rulebook which has more detailed rules in relation to trading on ISE Xetra, including the responsibilities of those with access to the system. The market model is updated from time to time in response to new releases of Xetra and other market changes. Release 15.0, which was introduced on 1 December 2014, introduced a number of technical and functional enhancements including new trading risk limits functionality and the amendment of the existing TOP order. Release 16.0 was introduced on 30 November 2015 and introduced a number of enhancements to the ISE Xetra functionality, including the Self-Match Prevention functionality which allows member firms to prevent their orders from matching against their other orders. In this document, Xetra refers to the overall trading platform which is applicable to both the Deutsche Börse and to the ISE, and ISE Xetra refers specifically to the control segment of the Irish Stock Exchange. Questions regarding ISE Xetra functionality can be e-mailed to [email protected].

Irish Stock Exchange

Market Model for the Electronic

30 November 2015

Xetra Release 16.0

Trading System: ISE Xetra

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2

Fundamental Principles of the Market Model The following are the fundamental principles for the ISE Xetra Market Model:

1

There are three phases to the trading day; a pre-trading phase, a main trading phase and a post trading phase.

2

Continuous trading starts with an opening auction, which can be interrupted by one or several intraday auction(s) (due to a volatility interruption) and ends with a closing auction.

3

The order book is only open for trading during auctions and continuous trading in the main trading phase.

4

During the auction’s call phase, the order book remains partially closed. The indicative auction price or the best bid and/or ask limit is displayed. In the case of an uncrossed order book, the accumulated volumes at the best bid and best ask are displayed in addition to the best bid and ask limits. In case of a crossed order book the executable volume for the indicative auction price and the 10 best bids and asks are displayed.

5

Order types supported are market orders, limit orders, market-to-limit orders, stop orders, iceberg orders, midpoint orders and hidden orders. In addition, market makers can enter quotes.

6

7

The minimum order size for all securities traded on ISE Xetra is: 

a round lot of one share for equities and ETFs



a round lot of 100,000 units for debt securities

The tick size for orders is set as 0.001 for all order book securities with the exception of debt securities which have a tick size of 0.001% and orders in the securities that are constituents of the ISEQ 20 which follow the FESE Table 4 tick size bands: Stock Prices

Lower Limit

8

Table 4

Upper Limit

Tick Size

9,999

0.001

Band 1

-

Band 2

10,000

49,995

0.005

Band 3

50,000

99,990

0.01

Band 4

100,000

-

0.05

The tick size for off order book trade reports is set as 0.0001 for all order book securities with the exception of debt securities which have a tick size of 0.001%.

9

An order is valid for a maximum of 360 calendar days including the date of entry, i.e. T+359, unless it is entered with a validity constraint.

10 All order types in order book securities can be entered, modified and deleted during all trading phases with the following exceptions: Irish Stock Exchange

Market Model for the Electronic

30 November 2015

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Trading System: ISE Xetra

Page 7 of 87

 

no orders can be entered during the price determination phase of auctions accept surplus quantity orders are the only type of order which can be entered during the pre-order book balancing and order book balancing phase of auctions

11 limit orders entered with the book-or-cancel restriction, top-of-the-book orders and TOP+ orders can only be entered during the continuous trading phase (excluding during volatility interruptions)Trading is anonymous, i.e. market participants cannot distinguish prior to a trade being executed which market participant entered the order. Post trade anonymity is also provided for trades executed on the order book in central counterparty (CCP) eligible securities. 12 All orders (with the exception of midpoint) are executed according to price/time priority. If, at a given price, both visible and invisible orders (hidden orders) exist, the visible orders are always executed with priority. Midpoint orders are executed according to volume/time priority taking into account the Minimum Acceptable Quantity. 13 The last determined price of a security in an auction or during continuous trading generally serves as the reference price, with the exception of midpoint orders which do not affect the reference prices. 14 The following principles apply in order to ensure price continuity of order book trades: 

Trading is interrupted and a volatility interruption is triggered if the potential price lies outside a pre-defined price range around the reference price



Market orders are executed at the reference price if there are only market orders executable in the order book



Price determination is geared to the reference price if non-executed market orders are in the order book in continuous trading and are matched against incoming limit orders

15 The execution probability of market orders in an auction is increased by the introduction of market order interruptions. 16 Trading is available in the off order book market for trades in order book securities throughout the trading day. 17 ISE Xetra provides one-sided entry for off order book trades i.e. once the trade is entered with an appropriate counterparty member ID, the trade is automatically approved. 18 Off order book trades may be entered with trade indicators, where relevant, to comply with MiFID and with up to three trade flags, which are specific to ISE Xetra. 19 The following principles apply in order to ensure price and volume reasonability of off order book trades: 

Price and volume validation checks are applied to off order book trades



The trader is alerted if an off order book trade report fails the price and/or volume validation check



The market is alerted if the trade is outside the applied reasonability checks

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Market Model for the Electronic

30 November 2015

Xetra Release 16.0

Trading System: ISE Xetra

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20 The delayed publication of off order book trades is supported by the use of a block trade delay indicator which is based on the ADT (average daily turnover) value. The minimum qualifying value that a trade must meet to be eligible for delay is outlined in the Market Parameters document. For securities admitted to trading on the ISE’s Main Securities Market this information is published by ESMA. 21 Trade confirmations are disseminated immediately after the respective trade to the market (unless it is an off order book trade which has met the criteria for delayed publication) and to each member firm which was a party to the trade. The counterparty for order book trades in CCP eligible securities is the central counterparty to the Irish Stock Exchange, Eurex Clearing AG (ECAG), which has CCPIE as its Xetra ID. 22 The daily accounting cut-off is carried out after the post-trading phase.

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Trading System: ISE Xetra

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3

Products and Segmentation A trading segment consists of a specific number of securities for which trading is organised in the same way. Possible criteria for segmentation are, for example, liquidity, index affiliation, and country of origin. Certain trading parameters of the Xetra market model, for example, order book transparency, trading times etc., can be configured for a particular trading segment. A combination of parameters is selected for each trading segment, which specifies the trading process in the respective segment. ISE Xetra is on a separate back-end within the overall Xetra platform operated by Deutsche Börse. Trading in equities, exchange traded funds and debt securities admitted to trading by the Irish Stock Exchange, is undertaken on this segment.

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Xetra Release 16.0

Trading System: ISE Xetra

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4

Access to ISE Xetra Prior to having access to trade in order book securities on ISE Xetra, a member firm has to fulfil the authorisation, suitability and other membership requirements outlined in the Membership chapter of the Rules of the Irish Stock Exchange. Approval is granted by the ISE and access to ISE Xetra is enabled by the Market Supervision Department in Deutsche Börse. Each member firm is granted a member firm ID. A member firm ID consists of an institutional ID (e.g. “ABC” for the ABC bank) and a location ID (e.g. “DB” for Dublin). A separate member ID is given for ISE Xetra. Each member firm ID is unique and forms part of an individual user’s ID in a member firm. Each user ID is also unique within each member firm. Users of the system can be categorised as follows: 

Traders Traders are individuals admitted for trading on ISE Xetra. Xetra defines a number of trader types - “senior traders”, “traders” and “trading assistants” which can be matched to the structure of a member firm’s trading department. A trader can act as agent trader (account A), as proprietary trader (account P) or as a market maker (account D). Orders will be identifiable accordingly, within the ISE Xetra system.



Other users Other users may include programme trading facilities and administrators. —

Programme Trading Facilities such as Algorithmic Trading Programmes (ATP), Direct Market Access (DMA) and Order Routing Services (ORS) must be set up in ISE Xetra with a specific user ID so that orders placed on ISE Xetra by these facilities are identifiable.



Administrators are users which are not admitted or authorised for trading but assign and maintain authorisation rights for the member firm’s personnel. This category also includes personnel in settlement, operation and compliance as well as information users.

4.1

ALLOCATION OF SPECIAL TRADING LICENCES Xetra has specific accounts for traders who act with a special trading licence. On ISE Xetra there is only one special trading licence available, which is “D” for market makers. It is possible for traders of different user groups in a member firm to act as a market maker in the same instrument. It is also possible that traders of more than one member firm act as a market maker in a specific instrument. The assignment of a user group to market maker status is effective on the next trading day. Further details of the responsibilities and functions of the different user types are contained in the ISE Xetra Security Administration Manual, available on www.ise.ie.

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Xetra Release 16.0

Trading System: ISE Xetra

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5

Provision of Additional Liquidity by Market Makers Member firms of the ISE can apply to act as market makers, raising the security’s liquidity by inputting firm quotes, thereby improving the price quality of supported securities. A market maker is required to input continuous two way prices throughout the continuous trading period based on at least the minimum quote quantity and with a bid/offer spread not exceeding a specified maximum amount. Market makers are particularly useful for improving the liquidity of mid and small cap stocks. Member firms who have access to the electronic trading book and who wish to act as market maker for one or more securities trading on ISE Xetra must meet the ISE’s criteria for suitability which, inter alia, takes into account the presence of adequate systems, appropriate risk management procedures, internal controls and suitably competent and experienced staff. The member firm must formally apply and be approved by the ISE’s Admissions Committee. Details of the application process and the procedure to withdraw or resign as a market maker are outlined in Chapter 5 of the Rulebook. ISE Xetra allows the participants who are registered in the system as market makers to enter quotes. Quotes entered into the system are good-for-day. Only one quote per security can be placed in the order book by each market maker. All quotes are non-persistent by default which means that they will automatically be deleted as soon as technical problems occur in the Xetra backend or if trading is interrupted in the respective instrument. Note that in the order book quotes are always treated like two orders (i.e. a limit buy and a limit sell order) by the Xetra platform, therefore, where this document refers to orders, the reference also applies to quotes.

5.1

MARKET MAKER TASKS AND DUTIES The ISE has set down criteria for the minimum quote quantity, the maximum quote bid/ask spread and the minimum time the quote has to remain on the order book for a member firm of the ISE which wishes to act as a market maker. Details of these parameters are outlined in the Market Parameters of the ISE.

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Trading System: ISE Xetra

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6

Trading Phases The trading day can be separated into three distinct phases on the ISE Xetra market model: 

Pre-trading



Main trading



Post Trading The pre-trading phase and the post trading phase have the same characteristics regardless of the market model adopted. ISE Xetra is not available for trading between the post trading and pre-trading phase. The ISE Xetra order book is only available for trading during the main trading phase. Member firms can trade by way of off order book trades through all of the trading phases.

6.1

PRE-TRADING PHASE The pre-trading phase precedes the main trading phase. Market participants can enter orders (with the exception of limit orders with the book-or-cancel restriction, top-of-the-book orders and TOP+ orders) in preparation for the trading day and modify or delete their existing orders. Similarly market makers can enter, modify and delete quotes. Market participants do not receive an overview of the market’s order book situation as the order book is closed during this phase. However, a market participant will receive an order confirmation when an order has been successfully entered on ISE Xetra. The last price determined during the last auction of the previous day is displayed. Off order book trades can be traded and reported in the pre-trading phase.

6.2

MAIN TRADING PHASE The main trading phase is the longest period of the trading day. It is divided into auctions and continuous trading periods. During the main trading phases, individual market segments, such as ISE Xetra, may utilise different trading hours and use different trading models. The following diagram shows the possible trading models that can be adopted on the Xetra platform. The first model shown is the one used for all securities traded on ISE Xetra. These are described further in Chapter 7 (Trading Models). Off order book trades can be traded and reported in the main trading phase.

6.3

POST TRADING PHASE The post trading phase is after the main trading phase. New orders can be entered (with the exception of limit orders with the book-or-cancel restriction) and existing orders can be modified or deleted during this phase. It is also possible to modify the attributes of orders in the post trading phase. Off order book trades can be traded and reported in the post trading phase.

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Xetra Release 16.0

Trading System: ISE Xetra

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Diagram 1: Possible variations of the main trading phase Possible Trading Phases

Pre-trading phase

Auctions in combination with continuous trading (no intraday auction)

Auctions in combination with continuous trading (unscheduled auction in continuous trading caused by volatility)

Trading phases

Post-trading phase

Opening auction

Continuous Trading

Closing auction

Opening auction

Continuous Volatility Continuous Interruption Trading Trading

Closing auction

time

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Trading System: ISE Xetra

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7

Trading Models The Xetra platform allows different market segments to adopt different trading models. This chapter details these trading models and outlines their characteristics. As mentioned previously, the pre-trading and post trading phase do not vary; however, the main trading phase can adopt various combinations of continuous trading and auctions as follows: 

Continuous trading with either: (a) an opening auction (b) no, one or several intraday auctions (c) either a closing auction or an intraday closing auction with an end-of-day auction



7.1

No continuous trading with one or more auctions per day at pre-defined points in time

CONTINUOUS TRADING WITH AUCTIONS This is the model adopted by the ISE for all securities traded on ISE Xetra and consists of three phases (a) pre-trading, (b) main trading and (c) post trading. The main trading phase on ISE Xetra is further divided into an opening auction, continuous trading and closing auction. A scheduled intraday closing auction (which is described in more detail in Section 7.1.3) is not part of the model adopted by the ISE, although intraday auctions can occur as a result of a volatility interruption (which is described in more detail in Section 10.1) The following trading day and the related market hours (all Irish time) are adopted on ISE Xetra for all ISE securities trading on the order book: 6.30–7.50

Pre-trading

7.50–8.00

Opening Auction*

8.00–16.28

Continuous Trading

16.28–16.30

Closing Auction*

16.30–17.15

Post Trading

* While the earliest times at which the opening and closing auctions will occur are 07.50.00 and 16.28.00 respectively, please note that there is a staggered timeframe for the commencement of the opening and closing auctions which varies from security to security and from day to day. The timeframe for all securities to enter into the auction phase will typically be no longer than five seconds however the delay may be longer when exceptional volumes of orders are present on the order book.

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Diagram 2: Continuous trading with no intraday closing auction scheduled Continuous Trading with Auctions Trading Phase Main Trading Phase PreTrading

Opening Auction

Intraday Auction

Intraday Auction

Continuous Trading

Continuous Trading

Continuous Trading

Order

Call PD Book

Balancing*

round lots

Order

round lots

round lots

round lots

round lots

round lots

Order Call PD Book

PostTrading

Closing Auction

Order

Call PD Book

Balancing*

Call PD Book

Balancing*

Balancing*

PD = Price Determination

* For securities without market imbalance information only time

7.1.1

Opening Auction An opening auction is carried out prior to continuous trading. The opening auction on ISE Xetra is ten minutes in duration and takes place between 07.50 and 08.00 Irish time. All orders, with the exception of midpoint orders, top-of-the-book orders, TOP+ orders and book-or-cancel orders, which are still valid from the previous day or which have already been entered on the current trading day during pre-trading, participate in this auction unless their execution is restricted to the closing auction. Quotes and iceberg orders entered in the order book also take part in the opening auction. Iceberg orders participate with their full volume in the auction. Resting BOC, top-of-the-book orders and TOP+ orders are deleted at the start of the opening auction. Market-to-limit orders are treated like market orders if they have no limit assigned and as limit orders if they already have a limit assigned. The opening auction consists of a call phase, price determination phase and an order book balancing phase (see Diagram 3: Flow of Opening Auction). Diagram 3: Flow of Opening Auction

Flow of Opening Auction

Pre-trading

Opening Auction

time Open Order Book

Call with random end

Call

Display of indicative price of best bid/ask limit

Continuous Trading

PD Order Book Balancing

Non-executed orders, which are not limited to auctions

Accept of surplus at the auction price possible

PD = Price determination Additional Market Imbalance Information

ISE Xetra ® - The e-trading system for the cash market

Call Phase The call phase begins the opening auction. Market participants are able to enter orders and quotes in this phase, as well as modify and delete their own existing orders and quotes.

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The order book is partially closed during the call phase. Information on the current order book situation is provided throughout the call phase. The indicative auction price is displayed when orders are executable. This is the price which would be realised if the price determination was concluded at this time. The best bid/ask limit is displayed if an indicative price cannot be determined. The best bid/ask limit does not take into consideration the limit of hidden orders. For the ISE Xetra trading model additional information in relation to market imbalance is disseminated during the call phase of the auction. This allows the market to react to the surplus before the price determination takes place. In the event of an uncrossed order book, the accumulated volumes at the best bid and best ask are displayed in addition to the best bid and ask limits; however, the volume of hidden orders is not included. In the event of a crossed order book, the executable volume for the indicative auction price and the order book are displayed. The duration of the call phase can be varied depending on the security’s liquidity. The call phase has a random end after a minimum period in order to avoid price manipulation. Price Determination Phase The call phase is followed by the price determination phase. Price determination only takes a few seconds. The auction price is determined according to the principle of highest executable volume on the basis of the order book situation at the end of the call phase. The auction price is the price with the highest order volume and the lowest surplus for each limit in the order book. If the order book situation is not clear i.e. if there is more than one limit with the same executable volume, further criteria are taken into consideration for the determination of the auction price (see Chapter 11 on Price Determination). Orders of the relevant security cannot be entered, modified or deleted from the order book during the price determination phase. The system will therefore reject any orders, quotes or quote requests. The auction price cannot be determined if no orders are executable. In this case, the best bid/ask limit is displayed; this does not take into consideration the limit of hidden orders. Time priority is taken into account in order to ensure that the maximum quantity of an unlimited order, or of an order which is limited to the auction price, is partially executed. Immediately after the auction price has been determined, both counterparties are informed of the order price, its volume and time of execution, by way of an execution confirmation. The execution confirmation is followed by a trade confirmation providing participants with the complete settlement and transaction data. Order Book Balancing Phase An order book balancing phase takes place if there is a surplus. Executable orders, which cannot be executed in the price determination phase will be made available to the market for a limited period of time. In the order book balancing phase orders are executed at the determined auction price. Orders of the relevant security can neither be changed nor deleted during order book balancing phase. The system will reject any orders, quotes or quote requests with the exception of accept surplus orders.

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Where accept surplus orders are entered during the order book balancing phase market participants can accept the surplus either partially or fully. Accept surplus orders are executed at the auction price in accordance with time priority. Counterparties receive both an execution confirmation and a trade confirmation for any orders executed during the order book balancing phase. At the end of the auction, all market orders and limit orders, which were not executed or were only partially executed, are transferred to the next possible trading form in line with their trading restrictions. If there is no auction price, market-to-limit orders which have yet to be assigned a limit are deleted. If there is an auction price, unexecuted parts of market-tolimit orders are entered into the order book with a limit equal to the price of the auction. Iceberg orders are transferred to continuous trading with their (remaining) peak or a new peak shown in the order book. Midpoint orders, entered before the commencement of the opening auction, are transferred to continuous trading. On ISE Xetra, the order book balancing period, where applicable, is one minute for all order book securities. If the security affected has a market maker or market makers assigned to it, the first 30 seconds will be pre-order book balancing. 7.1.2

Continuous Trading Continuous trading commences after the termination of the opening auction. On ISE Xetra the continuous trading period is from 08.00 to 16.28 Irish time. During continuous trading the order book is open. The order book displays the limits, the accumulated order volumes for each limit and the number of orders in the order book at each limit, with the exception of midpoint orders and hidden orders which are not included, as these are not disclosed to market participants. Each new order and each new quote is immediately checked for possible execution against orders on the other side of the order book. The self-match prevention functionality can be used to prevent orders from the same member firm from matching against one another. Orders are executed during the continuous trading phase according to price/time priority, with the exception of midpoint orders, which are executed according to volume/time priority taking into account the Minimum Acceptable Quantity. If, at a given price, both visible and invisible orders (hidden orders) exist, the visible orders are always executed with priority. Orders can either be executed fully, partially or not at all, thus generating one or more trades or none at all. Orders, which were not executed or which were only partially executed, are entered into the order book and sorted according to price/time priority or volume/time priority in the case of midpoint orders. Orders are sorted by price/time priority to ensure that buy orders with a higher limit take precedence over orders with lower limits and likewise, sell orders with a lower limit take precedence over orders with a higher limit. The second criterion ‘time’ applies in the event of orders sharing the same limit i.e. orders which were entered earlier take priority. All market orders are sorted by time priority. In addition, market orders have priority over limit orders in the order book. In relation to iceberg orders when a peak has been completely executed and a hidden volume is still available, another peak with a new time stamp is shown in the book. The

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hidden part of an iceberg order is completely processed before the next limit in the order book is executed. Therefore, execution of orders limited at less favourable prices is only possible after all iceberg orders at the more favourable limit are fully matched, but orders with the same limit as the new peak (excluding hidden orders) are executed before the new peak is executed. If multiple iceberg orders are available at one time, the respective peaks are introduced according to price/time priority. In relation to hidden orders, these are sorted according to price/visibility/time priority i.e. if a hidden order provides the best price on the order book, then the incoming order is executed against the hidden order; visible orders (limit orders and iceberg orders) have priority over same-priced hidden orders; and hidden orders are prioritised by price and then time over other hidden orders. Priority for Midpoint orders differs to other orders in that they are sorted according to volume/time priority which results in orders with higher volumes having priority over orders with smaller volumes. However, due to the Minimum Acceptable Quantity (MAQ) order book situations may occur in which strict volume/time priority is disregarded (e.g. for the purposes of optimising the executable volume or for releasing an executable order book situation blocked by the MAQ). Time as the secondary criterion applies in the event that two orders have the same volume. Therefore, in this case orders entered earlier are treated with priority. Rules for price determination during continuous trading are described in detail in Chapter 11. Counterparties receive both an execution confirmation and a trade confirmation for any orders matched during the continuous trading phase. 7.1.3

Intraday Auctions The Xetra platform allows continuous trading to be interrupted by scheduled intraday auctions. In ISE Xetra, intraday auctions only occur if a volatility interruption arises, which is described in Chapter 10. Other Xetra markets including the Xetra Frankfurt market have adopted scheduled intraday auctions for some of their market segments. Diagram 4: Intraday Auction with Partially Closed Order Book

Intraday Auction with Partially Closed Order Book

Intraday Auction Open Order Book Continuous Trading

Call with random end

Call

Display of indicative price of best bid/ask limit

Continuous Trading

PD Order Book Balancing

Non-executed orders, which are not limited to auctions

Accept of surplus at the auction price possible PD = Price determination

Additional Market Imbalance Information

ISE Xetra ® - The e-trading system for the cash market

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7.1.4 Closing Auction After the end of continuous trading the closing auction is initiated. On ISE Xetra the closing auction is two minutes in duration and takes place between 16.28 and 16.30 Irish time. This period may be extended due to market order or volatility interruptions as detailed in Chapter 10. As with the other auction types the closing auction is also divided into a call phase, a price determination phase and an order book balancing phase (see Diagram 5: Flow of Closing Auction). Diagram 5: Flow of Closing Auction Closing Auction with Partially Closed Order Book Post-trading Closing Auction End Main Trading Phase

End Continuous trading Open Order Book Continuous Trading

Call with random end

Call

Display of indicative price of best bid/ask limit

PD Order Book Balancing

Accept of surplus at the auction price possible PD = Price determination

Additional Market Imbalance Information

ISE Xetra ® - The e-trading system for the cash market

All orders, with the exception of midpoint orders, top-of-the-book orders, TOP+ orders, book-or-cancel orders, which were not executed in the preceding continuous trading period, participate in this auction unless their execution is restricted to the opening auction. All quotes and iceberg orders also take part in the closing auction. Iceberg orders participate in the auction with their full volume. Market-to-limit orders are treated like market orders if they have no limit assigned and as limit orders if they already have a limit assigned. Resting BOC, top-of-the-book orders and TOP+ orders are deleted at the start of the closing auction. The auction price cannot be determined if no orders are executable. In this case, the best bid/ask limit is displayed (this does not take into consideration the limit of hidden orders) and the market-to-limit orders are deleted. If there is an auction price, all market-to-limit orders (irrespective of whether they are partially executed or not executed at all) receive the auction price as a limit. Non-executed or partially executed market, limit orders and market-to-limit orders with a limit assigned are transferred to the next trading day according to their validity. Quotes and iceberg orders are deleted at the end of the trading day as they are only good-for-day (more detailed information in relation to this is outlined in Chapter 9). Midpoint orders are also transferred to the trading day according to their validity. For the ISE Xetra trading model additional information in relation to market imbalance is disseminated during the call phase of the auction. This allows the market to react to the surplus before the price determination takes place. In the event of an uncrossed order book, the accumulated volumes at the best bid and best ask are displayed in addition to the best bid and ask limits; however, the volume of hidden orders is not included. In the event of a crossed order book the executable volume for the indicative auction price and the order book are displayed. Irish Stock Exchange

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As is the case with opening auctions, an order book balancing phase is initiated if there is a surplus of orders. In the order book balancing phase, accept surplus orders are executed at the auction price.

7.2

SEVERAL AUCTIONS OR SINGLE AUCTION The Xetra platform also has a trading model whereby there is no continuous trading and trading is carried out in auctions only at predefined times. The ISE has not adopted this trading model for any of the instruments currently trading on ISE Xetra.

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8

Forms of Trading Securities can be traded either on the order book or off the order book by way of off order book trades. Order book trading can only take place during the main trading phase either during continuous trading or in auctions. Off order book trades can be entered throughout the trading day using the Open OTC Trading functionality of ISE Xetra. The ISE considers all trades in order book securities to be on Exchange whether undertaken on or off the order book.

8.1

AUCTIONS In auctions all order sizes (subject to the minimum order size) are tradable. A concentration of liquidity is assured by including all existing orders (market orders, limit orders, market-tolimit orders, iceberg orders and hidden orders), with the exception of midpoint orders, topof-the-book orders, TOP+ orders and orders with the book-or-cancel execution restriction, in each security. Iceberg orders participate with their full volume in auctions and hidden orders are handled like limit orders. During auctions, incoming BOC, TOP and TOP+ orders are rejected. Price determination in auctions is effected according to the principle of highest executable volume. At the same time, price/time priority is taken into account so that the maximum quantity of an order, which is limited to the auction price or unlimited, can be executed. For the purpose of the price determination in auctions, market-to-limit orders are treated in the same way as market orders. If there is no auction price, market-to-limit orders which were entered during the call phase of the auction are deleted. If there is an auction price, remaining parts of market-to-limit orders which are partly executed and market-to-limit orders which are not executed are entered into the order book with a limit equal to the price of the auction. The order book remains partially closed during the auction’s call phase. As an indication of the market situation, either the indicative price or the best bid/ask limits are displayed. For ISE securities additional information is displayed (see Chapter 7 Trading Models).

8.2

CONTINUOUS TRADING During continuous trading the order book is open to trading. As each new order (except for stop orders) is entered it is immediately checked to determine whether it can be executed against orders on the other side of the order book. The execution of orders during continuous trading is effected according to price/time priority with the exception of midpoint orders which are executed according to volume/time priority taking into account the Minimum Acceptable Quantity. If, at a given price, both visible and invisible orders (hidden orders) exist, the visible orders are always executed with priority. The order book shows the accumulated order volumes per limit and the number of orders per limit available for both the bid and offer side for each security up to 10 limits on either side. Volumes and limits of midpoint orders and hidden orders are not displayed.

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8.3

OFF ORDER BOOK TRADING Order book securities can also be traded off the order book but under the Rules of the ISE and reported into ISE Xetra. Such trades are considered to be on Exchange trades. General characteristics of off order book trades, whether traded on Xetra or ISE Xetra, are as follows: 

Off order book trades may be between: —

a member firm and a non-member firm



an in-house cross between two counterparties of the member firm



two member firms at a price agreed off the order book



Off order book trades are entered using the Xetra Open OTC Trading functionality



Entry of off order book trades can take place throughout the trading day i.e. during all trading phases



Once an off order book trade has been entered, a trade confirmation will be generated by Xetra and forwarded to both counterparties to the trade and relevant information about the off order book will be disseminated to the market



It is possible to specify both the settlement date and the type of settlement for off order book trades



Off order book trades are validated for price and volume reasonability



Off order book trades can be entered with one of the trade indicators (as described in Section 8.3.1) to comply with MiFID where relevant



The publication of off order book trades may be delayed by applying the Block Trade Delay indicator to the trade report, which can be used in the event that the firm deals on its own account, i.e. on a principal basis, and the size of the trade is equal to or exceeds the relevant minimum qualifying size outlined in the Market Parameters document



Off order book trades should be trade reported as close to real time as possible and in any case within 3 minutes of the trade being entered into if entered into during market hours or before the commencement of the continuous trading phase the next trading day if the trade was entered into after market hours

8.3.1

Trade Indicators on Xetra The following indicators should be used where relevant to comply with MiFID in relation to off order book trades. For ISE Xetra the trade flags described in Section 8.4.1 should also be used where relevant. Name of Trade

Code for Trade

Indicator

Indicator

Other than current

OthMktPrc

market price

Description

an indicator for when the price is determined by factors other than the current market valuation.

indicator

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Negotiated price

NegoPrc

indicator Block Trade Delay

an indicator for when the price was negotiated privately but is considered to be on Exchange.

DelayInd

indicator

an indicator for when the trade was dealt on a principal basis and meets the delayed reporting requirements. This should only be applied where the member firm wishes to delay the publication of the trade.

Portfolio trade

PortTrd

indicator

an indicator for when the trade was part of a portfolio trade. Portfolio trades are considered to be trades that may be subject to conditions other than the current market price. As a result when using this indicator the “other than current market price indicator” should also be used.

8.4

CHARACTERISTICS OF OFF ORDER BOOK TRADES ON ISE XETRA Particular characteristics of off order book trades on the Irish Stock Exchange on ISE Xetra are as follows: 

Off order book trades are considered to be on Exchange trades. In addition to being disseminated to the market, they are included in the ISE’s traded volumes



Off order book trades may determine the official closing price



Off order book trades in order book securities (with the exception of debt securities) can be entered in tick sizes of €0.0001 independent of the tick size applied to order book trading in those securities



Off order book trades in all order book securities, other than debt securities, are included in the calculation of the ISEQ indices (with the exception of the ISEQ 20 index which is calculated on order book prices only)



Each counterparty to an off order book trade is equally responsible for ensuring the timeliness and accuracy of an off order book(OTC) trade report



One-sided entry of off order book trades is supported



Each off order book trade report may be entered with up to three trade flags from the eleven available trade flags (more detailed information of trade flags is available in Section 8.3.18.4.1)



Unless otherwise agreed with the counterparty to a trade prior to execution, off order book trades must be settled according to standard settlement of two trading days after the date of the transaction i.e. T+2 (with the exception of trading in entitlements to rights which have a standard settlement of T+1). Trades which are dealt by prior agreement for non-standard settlement must specify the settlement terms when trade reported. The maximum settlement period is 25 trading days after the date of the transaction i.e. T+25

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8.4.1

Trade Flags on ISE Xetra The following trade flags should be used in relation to off order book trades on the ISE only where relevant. Name of Trade Flag

CODE

1

After Hours Trade

AH

2

Agency Cross

AX

3

Broker to Broker Trade

BB

4

Connected Party Trade

CP

5

Late Trade

LT

6

Ordinary Trade

OT

7

Protected Principal Trade

PP

8

Riskless Principal

RP

9

Special Settlement

SS

10

VWAP Trade

VW

11

Worked Trade

WT

Up to three of the trade flags listed in 1-11 above can be entered simultaneously in relation to any off order book trade reported. The two-digit trade flag will be validated by the electronic trading system. The trade flags assigned to off order book trades will be disseminated to the market at the time of trade reporting. 8.4.2

Off order book Trade Entry on ISE Xetra As already mentioned, off order book trades in order book securities are entered using the Open OTC Trading facility of ISE Xetra. The trade information is entered by one member firm on behalf of both parties to the trade. The counterparty entered for an off order book trade must be either the member firm itself or another ISE member firm. A counterparty member firm’s ID is required e.g. ABCDB but the counterparty’s individual trader’s ID is optional (if the counterparty trader ID is left blank, the trade will be assigned to the default trader account XXXXXX). Details of the information to be provided for off order book trade reports are outlined in the Market Parameters of the ISE.

8.4.3

Off order book Trade Confirmation on ISE Xetra All off order book trades entered on ISE Xetra are subject to a price and volume validation check (these are described in further detail in Chapter 9.5). In the event that a trade entered fails the price and or the volume validation check, an alert will appear on the screen requesting the user to confirm the trade.

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In this case, the trader who entered the trade should either delete and amend the trade (see Section 8.4.4) if the trade details submitted were incorrect, or confirm the trade if the trade entered is in fact correct. 8.4.4

Off order book Trade Deletion and Amendment on ISE Xetra Off order book Trade Deletion ISE Xetra provides member firms with the facility to self-delete and correct an off order book trade on the same business day as it was entered. Off order book trades can only be deleted by the trader who reported the off order book trade or by a senior trader in his subgroup. Off order book Trade Amendment ISE Xetra provides member firms with the facility to amend a trade by first deleting the original trade report and then entering a new amended trade using the amendment indicator. The new amended trade report should include the original trade time but will be given a new trade ID by ISE Xetra. Please note that if the trader does not delete the original trade, it will remain published and this will result in the trade being double reported in error. The amended off order book trade is disseminated to the market with an amendment indicator.

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9

Order Types Each order entered on the order book is identified by a time stamp and an order number which are automatically generated by the Xetra system. All orders, with the exception of midpoint orders, are prioritised on the order book according to time of entry and the price limit assigned, where applicable. If, at a given price, both visible and invisible orders (hidden orders) exist, the visible orders are always prioritised. Midpoint orders are prioritised according to the volume of the order and the time of entry taking into account the Minimum Acceptable Quantity. An order modification leads to a new time priority if either the limit is changed or the order modification has a negative impact on the priority of the execution of other orders in the order book (e.g. increase of the volume of an existing order). However, if the volume of an existing order should be decreased, the current valid time priority will remain. If a new time priority is appointed, the order will receive a new order number. The minimum order size for an order in an order book security traded on ISE Xetra is one share for equities and ETFs and 100,000 units for debt securities. Orders can be entered as persistent or non-persistent. Non-persistent orders are automatically deleted as soon as technical problems occur in the Xetra backend or if trading is interrupted in the respective instrument.

9.1

BASIC TYPES Three order types are admitted for price determination during continuous trading and in auctions: 

Market orders are unlimited bid/ask orders. These are to be executed at the next price determined



Limit orders are bid/ask orders, which are to be executed at their specified limit or better



Market-to-limit orders are unlimited bid/ask orders, which are to be executed at the auction price or in continuous trading at the best limit in the order book if there is no market order on the other side of the book. Any unexecuted part of a market-to-limit order is re-entered into the order book with a limit equal to the price of the executed part Orders can be further defined in terms of execution conditions, validity constraints and trading restrictions which are outlined below.

9.2

ADDITIONAL ORDER TYPES

9.2.1

Midpoint Orders The midpoint order is an order type which is supported for all order book securities except for debt securities, and which allows market participants to attain execution at the midpoint of the best bid/ask spread available on the ISE Xetra order book. Midpoint orders interact only with other midpoint orders and not with any other order type on the ISE Xetra

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order book. The ISE may define a minimum order size for midpoint orders. This is now set at 0 due to the introduction of the Minimum Acceptable Quantity (MAQ). Market participants can set a MAQ for each midpoint order individually. The MAQ defines that the order shall only be executed if a minimum number of shares, as prescribed by the MAQ, can be executed in one price determination. If the remaining volume of a midpoint order falls below the MAQ as a result of partial executions, the MAQ is automatically re-set to the remaining volume. The midpoint order can be entered with or without a limit, which, in contrast to other order types, is not considered for price determination but only serves as cap (floor) limiting the price at which a buy (sell) midpoint order may be executed. The execution price of a midpoint order is always the currently available midpoint of the best bid/ask spread in continuous trading on the order book. Therefore, midpoint orders can be executed merely through a change in the best bid/ask spread on the order book. During auctions, no execution of midpoint orders can take place. Midpoint orders available in the order book are not disclosed to the remainder of market participants i.e. midpoint orders are completely hidden from market participants. This is valid for the volume of a midpoint order as well as for any limit assigned. As opposed to other order types, volume/time priority applies if various midpoint orders compete with each other in the order book. The Minimum Acceptable Quantity is also taken into consideration. The MAQ can result in certain situations where strict volume/time priority is disregarded e.g. for the purposes of optimising the executable volume or for releasing an executable order book situation blocked by the MAQ. Further features of midpoint orders are as follows: 

They can be entered with execution conditions immediate-or-cancel or fill-or-kill and validity constraints good-for-day, good-till-date or good-till-cancelled



They are only executed if the potential execution price of the matched midpoint orders would not trigger a volatility interruption (see Chapter 10). However, midpoint orders do not themselves trigger volatility interruptions



Executions of midpoint orders do not lead to a new ISE Xetra reference price or trigger stop orders

9.2.2

Stop Orders In order to support certain trading strategies, two stop order types can be used, the execution of which will be possible after reaching a price limit (stop limit): 

Stop market order: When the stop limit is reached (or exceeded or falls below the price specified), the stop order is automatically placed in the order book as a market order



Stop limit order: When the stop limit is reached (or is exceeded or falls below the price specified), the stop order is automatically placed in the order book as a limit order Each modification of a stop order leads to the allocation of a new time stamp.

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9.2.3

Iceberg Orders In order to enable market participants to enter large orders into the order book without revealing the full volume to the market, iceberg orders can be used. For an iceberg order a mandatory limit, an overall volume and a peak volume must be specified. The peak is the visible part of an iceberg order and is introduced into the order book with the original timestamp of the iceberg order according to price/time priority. In continuous trading, as soon as the peak has been completely executed, and if a hidden volume is still available, a new peak is entered into the book with a new time stamp. Iceberg orders participate with their overall volume in auctions. The last peak introduced into the order book may be smaller than the specified minimum peak size. Iceberg orders will not be marked as such in the order book. Additional execution conditions or trading restrictions cannot be assigned to an iceberg order. Minimum peak sizes and minimum overall volumes are specified for ISE Xetra and outlined in the Market Parameters.

9.2.4

Hidden Orders The hidden order is an order type which is supported for all order book securities except for debt securities. It is similar to the limit order except that the order is hidden and therefore not visible to other market participants. In order to comply with MiFID requirements, a minimum order value is defined for hidden orders to ensure they are large in scale compared with normal market size1 If a hidden order is entered into the ISE Xetra system that does not satisfy the minimum order value set; it will be rejected. This also applies to order modifications, i.e. the reduction of a hidden order below the minimum order value will be rejected even if this order has been partially executed before. Thus the order remains unchanged in the book. If a hidden order has already been accepted by ISE Xetra, it remains hidden after any partial fill regardless of the size of its remaining unexecuted quantity. In continuous trading, hidden orders are subject to the same matching rules as limit orders, i.e. execution generally follows the price/time priority. However, if both visible and invisible orders (hidden orders) exist at the same price, the visible orders (including the hidden volume of iceberg orders) are always executed with priority. Hidden orders are fully considered during the determination of the indicative price in auctions. Prioritisation of hidden orders in auctions is according to strict price/time priority. If the determination of an indicative price is not possible, hidden orders are not considered for the disclosure of the best bid and/or best ask price.

1

The minimum order value is defined for each security in accordance with the minimum order size provided for in Table 2 of the Commission Regulations No. 1287/2006 titled “Orders large in scale compared with normal market size”. This information can be accessed under the following link http://mifiddatabase.esma.europa.eu/. For instruments not contained in the MiFID database, the Irish Stock Exchange defines the minimum order value.

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Hidden orders can be entered with validity constraints good-for-day, good-till-date and good-till-cancelled. Execution conditions are not supported for hidden orders.

9.3

CROSS REQUEST The cross request functionality enables a member firm to notify all other participants of the firm’s intent to cross against itself on the order book. Corresponding orders should be entered as standard orders. However, there is no guarantee that these orders will in fact be executed against each other. Any other participant, who has been informed by the Cross Request, can enter orders in the order book which in turn can be executed against the orders designated for the crossing. The cross request functionality will apply to continuous trading only.

9.4

SELF-MATCH PREVENTION The Self Match Prevention (‘SMP’) functionality will assist members to avoid unintended crossings. A new optional field (CrossID) will be introduced which enables members to prevent the execution of orders and quotes against all other orders and quotes of the same member marked with the same CrossID. By entering different values in the field, members will have the flexibility to define different rules for individual traders, trader groups or sessions.

9.4.1

Overview The Self-Match Prevention functionality can be used via the optional order attribute “CrossID”. During continuous trading the ISE Xetra system checks if orders/quotes which are executable against each other are from the same member and have been entered with the same “CrossID”. If this is the case the Self-Match Prevention Processing is triggered. Orders/quotes which become executable against each other during a volatility interruption or a regular auction will not be validated for the SMP criteria, i.e. SMP is not offered during these trading phases. Self-Match Prevention is not supported for midpoint orders, iceberg orders, hidden orders or orders with the execution restriction fill-or-kill. In case a book-or-cancel, TOP or TOP+ order is entered and immediately cancelled since it could match against a visible order or quote, this will not trigger the SMP process even if the incoming order and the sitting order have the same “CrossID” and member ID. Per default, Self-Match Prevention is switched on for all members. In case SMP is switched off an incoming order or quote containing a “CrossID” will be rejected. By entering different values in the “CrossID” field, members have the flexibility to define different rules for individual traders, trader groups or sessions.

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9.4.2

Self-Match Prevention Process If an incoming SMP order or quote with a “CrossID” is immediately executable it will be checked if a matching order or quote with the same “CrossID” of the same member exists in the order book (sitting SMP-Order). The incoming SMP-Order will be allowed to match until it hits a sitting SMP-Order, i.e. it can match partially against other orders in the book with a higher priority than the sitting SMPOrder, even against sitting orders of the same member but with different “CrossID”. As soon as the incoming SMP-Order would match against a sitting SMP-Order at a certain price level, the matching process will stop here and the following procedure is triggered: 

If the incoming SMP-Order’s (remaining) quantity is equal to the quantity of the first sitting SMP-Order it hits, the incoming order is cancelled and the sitting order gets deleted as well.



If the incoming SMP-Order’s (remaining) quantity is smaller than the quantity of the first sitting SMP-Order it hits, then the incoming SMP-Order will be cancelled. The quantity of the sitting SMP-Order will be decremented by the incoming order’s quantity.



If the incoming SMP-Order’s quantity relevant for the price level is greater than the quantity of the first sitting SMP-Order it hits, the incoming order’s (remaining) quantity will be decremented by the sitting SMP-Order’s quantity and the sitting order is deleted. The incoming SMP-Order’s then remaining quantity will match against other executable sitting orders until there are no further executable orders on this price level, until it is fully executed or until it hits another sitting SMP-Order on this price level. In the latter case the described steps will be repeated. In case there is still quantity left from the incoming SMP-Order after matching on the respective price level has completed, it will not match further price levels but will be cancelled.

9.5

EXECUTION CONDITIONS FOR CONTINUOUS TRADING In continuous trading, market orders, limit orders, market-to-limit orders and midpoint orders can be defined by the following execution conditions: 

An immediate-or-cancel order (IOC), otherwise known as an execute-and-eliminate order (E&E Order), is an order which is executed immediately and fully or as fully as possible. Non-executed parts of an IOC order are deleted without entry in the order book



A fill-or-kill order (FOK Order) is an order, which is executed immediately and in full or not at all. If immediate and full execution is not possible, the order is deleted without entry to the order book The following execution conditions are also available for limit orders only:

 A book-or-cancel order (BOC Order) will be accepted and added to the order book if it is

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(sell) BOC order is smaller (greater) than the best visible ask (bid). If immediate execution is possible the order is rejected without entry in the order book. The only exception to this is that immediate execution against hidden orders is possible provided that such execution would not trigger a volatility interruption. In the case that immediate execution of a BOC order against a resting hidden order would result in a volatility interruption, the BOC order will be rejected. As BOC orders do not participate in auctions, resting BOC orders are deleted when an auction or volatility interruption is triggered and furthermore, BOC orders cannot be entered and will be rejected during the auction call phase and during volatility interruptions. BOC orders can only be entered during the continuous trading phase (excluding volatility interruptions)  A top-of-the-book (TOP order) or TOP+ order will be accepted and added to the order

book if it is not immediately executable against a visible order in the order book, (i.e. if the limit of a buy (sell) TOP/TOP+ order is lower (higher) than the best visible ask (bid)), and if the total value of all the orders on the same side of the order book with the same limit or a limit better than that of the incoming TOP/TOP+ order is below a certain threshold value. Incoming TOP/TOP+ orders may also be fully or partially executed against resting hidden orders. However, if such an execution would trigger a volatility interruption the TOP/TOP+ order will be rejected. Resting TOP/TOP+ orders are deleted when an auction or volatility interruption is triggered and during these auctions incoming TOP/TOP+ orders are rejected.

9.6

VALIDITY CONSTRAINTS The validity of orders can be restricted for a period of time. To this effect, the market model offers the following variations (Please note that BOC orders are only valid until the next auction on ISE Xetra.): 

Good-for-day: Order is only valid for the current ISE trading day



Good-till-date: Order is only valid until a specified date up to a maximum of 360 calendar days from the date of entry, including the current day (=T+359)



Good-till-cancelled: Order is only valid until it is either (a) executed or (b) deleted by the originator or (c) deleted by the system on reaching its maximum validity of 360 calendar days including the current day (=T+359)

9.7

TRADING RESTRICTIONS It is possible to restrict the validity of orders to all auctions or to restrict an order to one specific auction. Iceberg orders, market-to-limit order, midpoint orders, hidden orders and BOC orders cannot be entered with these trading restrictions. 

Opening auction only: Order is only valid in opening auctions



Closing auction only: Order is only valid in closing auctions



Auction only: Order only valid in auctions



Accept surplus: This trading restriction can only be entered during the order book balancing phase of an auction. By using this trading restriction it is possible to execute the

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remaining surplus i.e. those orders which were unlimited or limited to the auction price but which could not be executed, at a later point in time. This special trading restriction must be used with the execution conditions immediate-or-cancel or fill-or-kill, and is only supported for instruments with an order book balancing phase

9.8

HANDLING OF ORDERS IN CASE OF EVENTS AFFECTING PRICES The ISE can suspend an order book security from trading in the event of it being suspended from listing or where the ISE in its judgement considers there to be a disorderly market in that security or considers that it is in investors’ interests to do so. The ISE will also suspend a security from trading if directed by the Competent Authority to do so. For example a company announces a major news story which has an extraordinary effect on the price of that security. In such circumstances existing orders in the system are centrally deleted and no further orders can be entered on the order book by member firms in that security. If an order book security has an underlying securitised derivative then that underlying securitised derivative is also suspended. Orders in the order book are also centrally deleted where dividend payments and other corporate actions (e.g. capitalisation issue) arise as this may affect the price of that order book security. This is completed prior to trading commencing on the first relevant trading day. The ISE can also interrupt trading in an order book security by setting it to “Halt” for technical reasons or in the event that amendments need to be made to its parameters intraday. In these circumstances, only non-persistent orders are deleted from the order book.

9.9

MODIFYING ORDERS The limit or volume of an existing order on the order book may be modified. If the limit of an existing order is increased or decreased a new time stamp, order number and priority is assigned to that order. If the volume of an existing order is increased, a new time stamp, order number and priority is assigned to that order. However, if the volume of an existing order is decreased, the time stamp, order number and priority of that order will be maintained. Orders entered via ETS cannot be modified within the J-Trader GUI and can only be modified via ETS.

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10 Safeguards in Auctions, Continuous Trading and Off Order Book Trading Xetra contains safeguards to increase price continuity and to increase the probability of market orders being executed. The main safeguards in the order book are: 

volatility interruptions



market order interruptions

Each of these safeguards happens on a per instrument basis and can only occur once per price determination. This means that there is only one volatility interruption and one market order interruption per auction. Xetra also contains safeguards to maintain the integrity of off order book trades reported to the market. The safeguards are: 

price validation checks



volume validation checks

The validation parameters for ISE securities are defined by the ISE on a per instrument basis.

10.1

VOLATILITY INTERRUPTIONS Volatility interruptions can occur during both auctions and continuous trading. They can be initiated in two ways:



The potential execution price lies outside the “dynamic” price range around the reference price. The price range is stipulated individually for each security and defines the maximum deviation (in either a positive or negative direction) from the reference price in a security. The reference price (reference price 1) for the dynamic price range is the last traded price of a security determined in an auction or during continuous trading. The reference price is readjusted during continuous trading only after an incoming order has been matched (as far as possible) against orders in the order book. Although off order book trades are considered on Exchange trades, reference prices do not adjust following the trade reporting of an off order book trade. Similarly, reference prices do not adjust as a result of a trade of two matched midpoint orders



The potential execution price lies outside the “static” price range also around the reference price. This wider static price range is stipulated individually for each security and defines the maximum deviation (in either a positive or negative direction) of an additional reference price (reference price 2) in a security. Reference price 2 generally corresponds to the last price determined in an auction on the current trading day. If this price is not available, the last traded price determined on one of the previous trading day is taken as the reference price. Reference price 2 remains largely unchanged during the trading day and is only re-

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adjusted if there is an intra-day trading auction which determines a new reference price 2 and therefore a new static price range. As stated above, although off order book trades are considered on Exchange trades, reference prices do not adjust following the trade reporting of an off order book trade. As also stated above, reference prices do not adjust as a result of a trade of two matched midpoint orders. It should be noted that in a “fast market”, the relevant dynamic and static price ranges are doubled. Fast markets may be declared by the ISE where there is a significant volatility of ISE prices. These circumstances arise on an infrequent basis. It should also be noted that in the case of midpoint orders, they are only executed if the potential execution price would not trigger a volatility interruption. Therefore, order executions at the midpoint do not trigger volatility interruptions. Furthermore, incoming BOC orders, TOP orders and TOP+ orders may only execute against resting hidden orders if such execution would not trigger a volatility interruption; otherwise the incoming order will be rejected.

10.2

VOLATILITY INTERRUPTION DURING AUCTIONS A volatility interruption is initiated if the indicative auction price lies outside the dynamic and/or static price range at the end of the call phase (see Diagram 6: Volatility Interruption during Auctions). Market participants are informed if a volatility interruption takes place in the auction. Iceberg orders participate with their full volume in volatility interruptions during auctions and hidden orders are handled like limit orders. Limit orders with the execution condition book-or-cancel, TOP or TOP+ are deleted from the order book once the volatility interruption is triggered. A volatility interruption initiates a limited extension of the call phase, allowing market participants to enter new orders (except BOC, TOP & TOP+ orders) and quotes as well as to modify or delete orders and quotes on the order book. Normally, after a minimum duration, the call phase ends randomly. However if, at the end of a volatility interruption, the potential execution price lies outside of a defined range, which is wider than the dynamic price range, the call phase of the volatility interruption will be extended until it is terminated manually. The extension of the volatility interruption is displayed to market participants. If the indicative auction price continues to lie outside of the static or dynamic price range respectively but not outside the wider range for extended volatility interruptions at the end of the volatility interruption, price determination is carried out nonetheless. If a surplus remains at the end of the order book balancing phase, all non-executed or partially executed market and limit orders are transferred to the next possible trading form according to their order sizes and trading restrictions whether this is continuous trading or the next auction. If there is no auction price, market-to-limit orders which were entered during the call phase of the auction are deleted. If there is an auction price, remaining parts of market-to-limit

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orders which have been partially executed and market-to-limit orders which have not been executed at all, are entered into the order book with a limit equal to the auction price. Diagram 6: Volatility Interruption during Auctions Volatility Interruptions During Auctions time Auction (extended)

Call

Indicative Price Extended Call

Market Participants can react by modifying, deleting existing orders or by placing new orders and quotes PD Order Book Balancing

Non-executed orders which are not limited to auctions

10.3

Continuous Trading

PD = Price determination ISE Xetra ® - The e-trading system for the cash market

VOLATILITY INTERRUPTION DURING CONTINUOUS TRADING To ensure price continuity during continuous trading, incoming orders are executed according to price/time priority and other trading restrictions unless the potential execution price of an order lies outside the dynamic and/or static price range around the reference price in which case trading is interrupted by a volatility interruption. Market participants are informed if a volatility interruption takes place during continuous trading. A volatility interruption triggers a change in trading form, i.e. continuous trading is interrupted and an auction is initiated. The resulting auction is restricted to orders designated for continuous trading. Also resting orders with the execution restrictions bookor-cancel, TOP and TOP+ are deleted when the volatility interruption is triggered. As with other auctions, iceberg orders participate with their full volume in volatility interruptions and market-to-limit orders entered in the call phase are treated like market orders for the purpose of price determination. Hidden orders are handled like limit orders. The auction consists of a call phase and a price determination phase. Normally, after a minimum duration, the call phase ends randomly. However, if the potential execution price lies outside of a defined range, which is wider than the dynamic price range, the call phase will be extended until the volatility interruption is terminated manually. Continuous trading starts again following price determination or, if price determination is not possible, at the end of the auction call phase (see Diagram 7: Volatility interruption during Continuous Trading).

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Diagram 7: Volatility Interruption during Continuous Trading

Volatility Interruptions During Continuous Trading time Volatility Interruption

Interruption of continuous trading as the potential execution price lies outside of the pre-defined price range

Continuous Trading

Market Participants can react by modifying, deleting existing orders or by placing new orders and quotes Extended Call

Continuous Trading

PD Order Book Balancing

PD = Price determination

ISE Xetra ® - The e-trading system for the cash market

10.4

MARKET ORDER INTERRUPTION IN AN AUCTION Market order interruptions can occur during auctions only (but not during auctions initiated by volatility interruptions). If market orders or market-to-limit orders within the order book are not executable or are only partially executable at the end of the call phase (resulting in a market order surplus), the call phase will be extended for a limited time in order to increase the probability that market orders and market-to-limit orders are executed during the auction. Market participants will be able to enter new orders and quotes or change and delete existing orders and quotes on the order book. Market participants are informed if a market order interruption takes place. The call phase is terminated as soon as all existing market orders and market-to-limit orders can be executed or it may be terminated randomly. If a surplus remains at the end of the order book balancing phase, all non-executed or partially executed market and limit orders are transferred to the next possible trading form according to their order sizes and trading restrictions (see Diagram 8: Market order interruption). If there is no auction price, market-to-limit orders which were entered during the call phase of the auction are deleted. If there is an auction price, remaining parts of market-to-limit orders which have been partially executed and market-to-limit orders which have not been executed are entered into the order book with a limit equal to the auction price. Iceberg orders are transferred to continuous trading with their (remaining) peak or a new peak shown in the order book. If the market order interruption is triggered after a volatility interruption, this market order interruption is subject to a modified price check taking into account the extended dynamic price range.

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Diagram 8: Market order interruption Market Order Interruption time Call (extended)

Information to the market regarding market order interruption

Call

Continuous Trading Extended Call

Extended Call: If all market orders are executable, price determination is carried out immediately

PD Order Book Balancing

PD = Price determination

Non-executed orders which are not limited to auctions

10.5

PRICE VALIDATION OF OFF ORDER BOOK TRADES All off order book trades reported will be subject to a price validation check for reasonability. The price validation will be performed against the reference price of the instrument. There are two ranges for checking the price of an off order book trade. The first range is applied to all off order book trades with the exception of trades that have been reported with the “other than current market price” and/or the “portfolio trade” indicators selected. These trades will be validated against the second wider range. This wider range will be calculated by multiplying the “normal” range with a factor defined by the ISE. If the off order book trade price is outside the respective price range the trade will be published immediately with a price alert code. At the same time the trader ID of the originator of the trade is asked to confirm the trade. If the trader then chooses to confirm the trade, a confirmation indicator is also disseminated to the market. If the price entered was in fact incorrect, the trader should delete the trade and re-enter a new trade with the correct price and the amendment indicator set. Please refer to Chapter 8 for more detailed information regarding the process to delete, amend and confirm off order book trades. If the price of the off order book trade lies within the respective range, the off order book trade is published immediately. Off order book trades entered will not be price-validated, if either or both of the following conditions are fulfilled (Such trades will be disseminated to the market with an alert indicator to show that no price validation was carried out):



The off order book trade was conducted at an “ex day” of that instrument



The off order book trade previously entered and qualified as invalid is being confirmed

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10.6

VOLUME VALIDATION OF OFF ORDER BOOK TRADES All off order book trades reported will also be subject to a volume validation check for reasonability. The volume validation will be performed against the volume parameter defined for the instrument. If the volume of the off order book trade exceeds this predefined volume the off order book trade is published immediately with a quantity alert code. At the same time the trader ID of the originator of the trade is asked to confirm the trade. If the trader then chooses to confirm the trade, a confirmation indicator will also be disseminated to the market. If the volume entered was in fact incorrect, the trader should delete the trade and re-enter a new trade with the correct volume and the amendment indicator set. Please refer to Chapter 8 for more detailed information regarding the process to delete, amend and confirm off order book trades. Off order book trades entered will not be volume-validated, if either or both of the following conditions are fulfilled. (Such trades will be disseminated to the market with an alert indicator to show that no volume validation was carried out):



The instrument in question does not have a volume cap



The off order book trade previously entered and qualified as invalid is being confirmed

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11 Illustration of Price Determination Processes 11.1

AUCTIONS

11.1.1

Basic Matching Rules The auction price is determined on the basis of the order book situation at the end of the call phase. For the purpose of price determination in auctions, market-to-limit orders are generally treated in the same way as market orders. Iceberg orders, which participate with their overall volume in auctions, are treated as limit orders. Hidden orders are handled like limit orders. Midpoint orders and limit orders with the BOC, TOP or TOP+ execution restrictions do not participate in auctions. The auction price corresponds to the limit in the order book with the highest executable order volume and the lowest surplus (see example 1). Should there be more than one limit with the highest executable order volume and the lowest surplus, the surplus is further referred to for the determination of the auction price.



The auction price is determined by the highest limit if the surplus for all limits is on the buy/bid side (surplus of demand) (see example 2).



The auction price is determined by the lowest limit if the surplus for all limits is on the sell/ask side (surplus of supply) (see example 3). If the inclusion of the surplus does not lead to a clear auction price, the reference price is used as an additional criterion. This may occur:



If there is a surplus of supply for some of the limits and a surplus of demand for the rest (see example 4)



If there is no surplus for all limits (see example 5) In the first case, the lowest limit with a surplus of supply or the highest limit with a surplus of demand is used for further price determination. In both cases the reference price is taken into account for the determination of the auction price, i.e.:



If the reference price is higher than or equal to the highest limit, the auction price is determined according to this limit



If the reference price is lower than or equal to the lowest limit, the auction price is determined according to this limit



If the reference price lies between the highest and lowest limit, the auction price equals the reference price If only market orders are executable against one another, they are matched at the reference price (see example 6). An auction price cannot be determined if orders are not executable against one another. In this case, the best bid/ask limit (if available) is disclosed (see example 7). This does not take into consideration the limit of hidden orders.

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The following diagram gives an outline of how price determination rules affect possible order book formations in an auction. The number in brackets refers to the corresponding example for this rule. (1) Auction price = limit

… exactly one limit

Only surplus on the bid

(2) Auction price = highest limit

Only surplus on the ask

(3) Auction price = lowest limit

Reference price is a possible limit Ref. price between highest and lowest possible limits

Reference price is not a possible limit Highest executable volume with lowest surplus determined for ...

Ref. price not exactly in the middle of lowest and highest possible limit

Ref. price is exactly in the middle of lowest and highest possible limit

… several limits

(4a) Auction price = reference price

(4b) Auction price = limit nearest to reference price

(5a) Auction price = highest possible limit

Reference price >= highest possible limit

(5b) Auction price = highest possible limit

Reference price lowest ask limit

(7) Price = lowest ask limit

(8) No price

Only meets MO

(9) MtL rejected Meets bid LO

Only meets LO Meets ask LO

Incoming Market-to-Limit Order Meets MO+LO

MtL = Market to Limit order MO = Market order LO = Limit order RP = Reference price

(6) Price = reference price

Does not meet any order

(10) Price = highest bid limit (11) Price = lowest ask limit

(12) MtL rejected

(13) MtL rejected

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Meets bid MO

Only meets MO Meets ask MO

RP  lowest ask limit

(14) Price = reference price

RP < lowest ask limit

(15) Price = lowest ask limit

RP  highest bid limit

(16) Price = reference price

RP > highest bid limit

Highest BL  lowest AL

(17) Price = highest bid limit

Meets bid LO

(18) Price = highest bid limit

Meets ask LO

Only meets LO Highest BL < lowest AL

Incoming Limit Order

(19) Price = lowest ask limit

(20) No price RP  highest BL and lowest AL

Meets bid MO+LO

Highest BL  lowest AL and > RP Lowest AL > highest BL and RP

Meets MO + LO RP  highest BL and lowest AL Meets ask MO+LO Does not meet any orders

(27) No price

Highest BL  lowest AL and

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