Private forum The bourse is enhancing its Dark Functionality Suite to provide clients with versatile trading strategies The JSE continues to innovate, providing additional products and enhancements across its equity market offering. This year, it will have made available three additional enhancements in its Dark Functionality Suite, which is a series of products in the exchange’s Complex Order Suite. The Dark Functionality Suite enables trading strategies by providing a safe haven to execute large orders in a non-visible, yet regulated environment. Kim Pillay, Product Owner: Equity and Equity Derivatives in the JSE Capital Markets division, says that ‘using these equity market enhancements provides a competitive edge and improves the efficiency of filling large orders, while minimising impact’. The first set of enhancements, introduced in 2016, were aimed at helping brokers to trade larger and smarter, with a focus on dark functionality. ‘The JSE introduced enhancements on our equity market to allow market participants to buy and sell large blocks of shares and to trade anonymously within the best bid and offer [BBO] without interference,’ she says. Among the product enhancements implemented were the ability to execute pre-negotiated trades through the central order book by using cross trades; enhancements to hidden order functionality through ‘pegged’ hidden orders that link the prices of hidden orders either to the best bid, best offer or midpoint prices in the central order book; and an end-of-day volume auction that allows the non-visible uncrossing of large orders at the closing price. Now, explains Pillay, the JSE has further augmented its Dark Functionality Suite. The exchange has introduced an enhancement to the central order book cross trade (XT). ‘Clients now have the option to match at the prevailing midpoint, should the price not meet the criteria of being within the BBO at the time of order entry. ‘This secondary execution method is optional and will automatically match at midpoint if elected,’ she says. ‘This will ensure clients are less frustrated as execution is guaranteed and their experience with the JSE trading system is enhanced.’ Then there are block trades that ‘allow clients to report large trades directly to the JSE. These have always been very large in size, and usage by clients has been limited due to the large minimum value requirement’. The JSE is in the process of reducing the size requirements to facilitate more block activity. Finally, according to Pillay, the exchange’s latest offering to the market is iceberg order functionality. This, she says, ‘will enable clients to submit large orders and display only a small portion of the total order. This will make it possible for them to have their full order on the central order book without disclosing the full order size’. Pillay adds that these latest improvements ‘resulted from the JSE’s continued efforts to evolve and enhance our market functionality and respond to the needs of our clients. We continue to engage with our clients in order to provide a world-class trading platform and meet ever-evolving needs’. While it’s not part of the Dark Functionality Suite, Pillay cites the recent introduction of ‘monthly expiries’ as a further example of innovation by the exchange. ‘Clients can now trade the most liquid JSE Top 40 stocks and FTSE/JSE indices as standard future and option contracts that expire on the third Thursday of every month. The intention is to foster further activity with additional liquidity events in the market.’ She says the exchange will ‘continue to explore and implement initiatives to further enhance and grow the market while ensuring market quality and improve efficiency for market participants’. Examples of new products and functionality under consideration for next year’s roadmap include RFQs (request for quotes), variance futures and random auctions. By Hilton Tarrant Image: K-Leigh Siebritz/HMimages