London Stock Exchange Derivatives Market

Transcription

1 London Stock Exchange Derivatives Market TRADING Version 6.6

2 1. Introduction Clearing and margining 5 Product Overview 6 2. General functionality Series Generation 7 Corporate Actions Treatment Rules 8 Corporate Action Identifier 8 Strike Price Generation 8 3. Trading Functionality Opening auction (available for interest rate derivatives only) 13 Order book Trading 14 Tailor-made (Flex) series (for equity derivatives only) 18 Bilaterally Negotiated Trades (BNTs) and Trade Reporting Connectivity and Access Physical Connectivity 23 Third Party Connectivity: Network Service Providers (NSPs) 23 Third Party Connectivity: Vendor Access Networks (VANs) 23 Internet VPN 24 Vendor Software Solutions 24 BCS FTP Service 24 Trading APIs 24 Drop Copy 25 Market Data API Clearing API Market Operations and Clearing Transaction reporting and Market Identifier Code (MIC) Central Counterparty Protection Margining and Position Controls Interest Rate derivatives Give Ups Account Structure Market Operations and Clearing Processing Timetable Clearing reports Exercise, Assignment and Settlement 28 1

3 6. Risk Controls Order book 31 Price Controls on Block Trades 34 Bulk Quoting Protection 35 Pre-Trade Validation Service (PTVS) Tariff Models Contacts Appendix A Market Operations and Clearing Processing timetable Equity derivatives 40 Interest Rate derivatives Appendix B - Order book trading Matching algo by product Appendix C - Order Types Order types for electronic, anonymous Order book trading Block Trades Appendix D Controls Price and Quantity Restrictions for equity derivatives Price and Quantity Restrictions for Interest rate derivatives Index options (order book price control), excluding FTSE 100 Index options FTSE 100 Index and Index Weekly options (order book price control) - Trade v.s. Settlement FTSE 100 Index and Index Weekly options (order book price control) - Trade v.s. Last Stock options (order book price control) Too Deep Limits (for Norwegian Derivatives only) Appendix E - Futures Contracts Value Ranges Equity derivatives Interest rate derivatives Appendix F Standard combinations 57 2

4 14.1. List of Exchange-generated strategies for equity derivatives List of Exchange-generated strategies for Interest Rate derivatives Appendix G - Flexible combinations Appendix H - Bulk quoting protection: Default thresholds and user configurable ranges IOB options (maximum volume protection only) UK stock options (maximum volume protection only) Norwegian index, options and futures All other equity derivatives Interest Rate derivatives 62 3

5 Document history Issue Date Description 6.6 Review of Block Thresholds for Norwegian Derivatives January 2017 Review of Price Controls and Fair Value Ranges; Update to Appendix B Matching algoo details December 2016 Introduction of the Too Deep Trading Safeguard for Norwegian Deriavatives November 2016 Change of the Price and Quantity Restrictions for equity derivatives (Appendix D) November 2016 Extension of the Pre-Trade Validation Service (PTVS) to Equity derivatives November 2016 Change of the Circuit Breakers for FTSE 100 Index based options 6.0 September 2016 Introduction of CurveGlobal products Trading on LSEDM May 2016 Introduction of Reporting Broker Platform Provider (RBPP) service. Update to sections 3.3 and 4.3. Introduction of FTSE 100 index weekly options from 31 May Update to Block sizes for FTSE 100 monthly and weekly uptions, new order book price controls for weekly options in Appendix B. Update to Section 5.8 for IOB and Nowegian index options December 2015 Removal of Uralkali (delisted as of 22 December 2015) from Appendix E December 2015 Change of minimum user defined thresholds for Bulk Quote protection November October 2015 Introduction of UK stock options with 100 share contract size. Amendments to Appendix B. Change to automatic exercise rule for Norweigan single stock options (Section 5.8). Introduction of UK stock options on Order book and new UK stock futures for Block Trading and Trade Reporting September 2015 Introduction of BIST 30 index futures and options July 2015 Update to Appendix B (Price controls for Norwegian futures contracts) May 2015 Minor updates reflecting Rulebook changes effective 1 May April 2015 Change to Norwegian derivatives strike price generation table March 2015 Updated Block trade parameters for UK Stock Options in Appendix B Controls March 2015 Updated Trading Services Description for the upgrade of the LSEDM trading platform to SOLA 7.0. Added sections for Strategies, Tailor-made (Flex) series creation and promotion to Standard series, Block Trading, Bundled Orders (Multiple Block Trades), Third Party Order execution (Block Trading for Reporting Brokers) and Self Execution Prevention. Revised the ordering of the General and Trading Functionality Sections September 2013 Document creation under London Stock Exchange Derivatives Markets (LSEDM)

6 1. Introduction London Stock Exchange Derivatives Market (LSEDM) offers trading of Equity and Interest Rate derivatives products. Equity derivatives products include single stock, index and dividend derivatives based on United Kingdom, International Order Book (IOB), Norwegian and Turkish underlyings. Interest Rate derivative products developed in conjunction with CurveGlobal include Short Term Interest Rate (STIR) futures on Three months Euribor and Sterling and Long Term Interest Rate (LTIR) futures on Schatz, Bobl, Bund and Long Gilt. CurveGlobal is an interest rates derivatives joint venture between London Stock Exchange Group and a number of major financial institutions LSEDM s trading platform is hosted in the datacentres of the London Stock Exchange Group (LSEG) and has interfaces common to other markets of LSEG, ensuring that customers accessing other LSEG markets can connect to LSEDM with minimal incremental cost or effort. LSEDM offers Member Firms new and innovative features, in addition to the highly successful market models used for its existing Norwegian and IOB business which has been developed alongside Members. Two different instances of the platform are currently run, based on SOLA: one for Equity derivatives and one for Interest Rate derivatives. For equity derivatives, EquityClear members can benefit (with the exception of Norwegian contracts due to interoperability arrangements) from margin offsets and cross source trade netting. For Interest Rate derivatives, LCH clearing members will be offered portfolio margining services between listed derivatives and OTC derivatives cleared by LCH SwapClear services. In order to benefit from portfolio margining, Clearing Members must be a member of both SwapClear and Listed Derivatives services under the same legal entity Clearing and margining Member Firms can improve operational efficiency and net margin payments across geographies, all through one clearer - LCH.Clearnet (LCH).

7 1.2. Product Overview Equity derivatives Underlying Single Stock Index Dividend Norway Russia and IOB UK Futures and Options on the Norwegian stocks Futures and Options on the most liquid IOB DRs Futures and Options on UK underlying shares Futures and Options on OBX, Futures on OBOSX Futures and Options on FTSE RIOB Futures and Options on FTSE 100; Futures on FTSE UK Large Cap Super Liquid Futures on the most liquid IOB DRs 1 Turkey Futures and Options on BIST 30 Interest Rate derivatives Underlying Short Term Interest Rate (STIRs) Long Term Interest Rate (LTIRs) Instrument Three month Euribor futures Three month Sterling futures Schatz futures Bobl futures Bund futures Long Gilt futures The detailed list of products traded on LSEDM and related full Contract Specifications are available on the LSEDM Document Library. 1 International Order Book Depository Receipts. This includes Dividend Neutral Stock Futures. 6

8 2. General functionality 2.1. Series Generation Detailed contract specifications for each product are specified in the LSEDM Contract Specifications document. For full information on contract specifications, product codes and underlying ISIN codes, please refer to the LSEDM Document Library Symbology The following symbology rules apply to derivatives available for trading on LSEDM. During the normal Trading Hours for each Standardised Product, LSEDM disseminates 5 levels of market depth. The Market Data information is distributed via HSVF as described in the HSVF technical specification on the LSEDM Document Library. In the absence of an express statement to the contrary, information relating to a Series listed in conjunction with Oslo Børs reflects the combined activity in such Series of Members of LSEDM and Members of Oslo Børs Tailor-made (Flex) Series Codes Each instrument is identified by a string of 6-12 characters (excluding Options strike): a maximum of six characters designates the Contract Underlying 2 ; one character designates the Expiration Year; two characters designate the Expiration Day; one character designates the Expiration month; (Options only) the following numeric characters designate the strike price; (Options only) an A or E designates whether the option is American or European style; An additional symbol may also be added to indicate that a corporate action has occurred and the readjustment rules have been applied to that series (see below) Month Code Convention LSEDM currently uses two separate month coding systems. One system is in use for IOB and Norwegian derivatives, and a separate coding system (international convention) is being used for all other products going forward Standardised Series Codes Each instrument is identified by a string of 4-9 characters (excluding Options strike) a maximum of six characters designates the Underlying instrument or Index; one character designates the Expiration Year; one character designates the Expiration Month; (Options only) the following numeric characters designate the strike price; An additional symbol may also be added to indicate that a corporate action has occurred and the readjustment rules have been applied to that series (see below). Month IOB and Norwegian derivatives Index Futures Call Options Put Options and SSF January A A M February B B N March C C O April D D P May E E Q June F F R 2 For Flex single stock derivatives with flexible settlement style, the first character of the underlying code is 1 in case of cash settlement. 7

9 IOB and Norwegian derivatives July G G S August H H T September I I U October J J V November K K W December L L X 2.2. Month Futures All other products Call Options Put Options January F A M February G B N March H C O April J D P May K E Q June M F R July N G S August Q H T September U I U October V J V November X K W December Z L X Corporate Actions Treatment Rules Where possible, LSEDM harmonises the treatment of corporate actions to market standards, please refer to the Derivatives Corporate Actions Policy available on the LSEDM Document Library. For Norwegian products, LSEDM follows Oslo Børs Corporate Action policy Corporate Action Identifier Presence of any of the following additional letters on the end of a series code indicates that a corporate action has occurred and readjustment rules have been applied to that series. For example, an R would indicate that 5 corporate actions have been applied to a series during its lifetime with readjustment rules having been applied 5 times Corporate action number Identifier 1 st X 2 nd Y 3 rd Z 4 th Q 5 th R 6 th S 7 th G 8 th U 9 th V Strike Price Generation LSEDM generates new strikes on Options series according to the following: Minimum number of series in-the-money (ITM); Minimum number of series out-of-the-money (OTM); Always one series at-the-money (ATM) Designation of the ATM strike Every minute, the SOLA derivatives system marks one of the series listed the ATM strike price. It does this by looking at the price of the underlying and seeing which series is closest to this level. At the end of each day, an ATM strike is chosen (or created if it is the night before the listing of a new series) relative to the closing price of the underlying. New In-the-Money strikes and Out-of-the Money strikes are generated relative to this ATM price. The ATM strike for a particular underlying / expiry combination will be created at a level determined 8

10 by the strike price increment for that expiration. For example, if the strike price generation increment for a particular underlying/expiry combination is 25 index points, the ATM series will be created / chosen at a price ending in 25 points, 50 points, 75 points or 00 points. If the generation increment is 50 points, the ATM strike will be created / chosen at a price ending in either 50 points or 00 points On Request listing of additional standardised series Members may request by phone or electronic communication to LSEDM Market Operations for a specific equity options series to be listed on the Order book if it is not automatically generated in accordance with the parameters described in the relevant Contract Specifications and the Strike Price Generation section of the Trading Services Description. This is known as an On Request listing. Members shall provide the following information: The Underlying instrument; The Expiration Month, which should already exist on screen, (Expiration Day will always be standardised as per the relevant Contract Specification) The Strike Price (should be within the same strike price interval that already exists). LSEDM Market Operations will confirm when the On Request Standard series is available for trading on the Order book. 9

11 IOB Market a) FTSE RIOB Options Expiration Minimum ITM strikes generated Minimum OTM strikes generated All contracts 5 5 Bid price Increment b) IOB DR Options Expiration Minimum ITM strikes generated Minimum OTM strikes generated All contracts 7 7 Bid price Increment Norwegian Market a) OBX Options Expiration <3 months 3 months > Minimum ITM strikes generated 2 2 Minimum OTM strikes generated Bid price Increment

12 b) Norwegian Stock Options Expiration 3 months > 3 months and 6 months 6 months > Minimum ITM strikes generated Minimum OTM strikes generated 2 2 Bid price Increment UK Market a) FTSE 100 options (weekly and monthly) Expiration Minimum ITM strikes generated Minimum OTM strikes generated Strike price increment used 1 month points 3 months points 1 year points 2 years points 2 years

13 b) UK Stock Options Expiration Minimum ITM strikes generated Minimum OTM strikes generated 1 months > 1 months and 3 months > 3 months and 12 months Bid price Increment , ,000-2, ,000-5, ,000-10, > 10, , ,000-2, ,000-5, ,000-10, > 10, , ,000-2, ,000-5, ,000-10, > 10,000 1, Turkish Market BIST 30 options Expiration Minimum ITM strikes generated Minimum OTM strikes generated All contracts 7 7 Strike price increment used 2 (corresponding to 2,000 index points) 12

14 3. Trading Functionality The key features of the LSEDM trading platform are described in this section. Please refer to Appendix A for a detailed description of trading phases across products traded on LSEDM Opening auction (available for interest rate derivatives only) Opening auction phase on interest rate derivatives is structured according to the three following states. a. Pre-Opening (from 6:30am to a specific time set at each product level) Orders entered during this phase contribute to Theoretical Opening Price (TOP) calculation. No trade execution is performed during this phase and Member Firms are only allowed to enter, modify and cancel orders and quotes (cross orders and strategy orders are not available). SOLA notifies all clients via HSVF with one message for each Instrument Group that switches to the Pre-Opening state. In case there is one bid and one ask at the same price in the orderbook during the Pre-opening state or Instrument in the reserved status 3 : the first level displays the TOP as an aggregated price level if there are market orders in the orderbook, the TOP level is split as follows: o the side(s) of the orderbook with market order(s) contributing to the TOP level displays the aggregated market order price(s) in the second level o subsequent level display aggregated limit order(s) contributing to TOP 3 Reserved status of a Instrument refers to an intra-day auction. subsequent levels display the additional prices that would not match TOP. Theoretical Opening Price calculation TOP is calculated and disseminated in real-time. In particular, TOP calculation is based on the following steps: Step 1: Maximisation of traded volume TOP is the price at which it is possible to execute the highest number of contracts. Step 2: Minimisation of surplus If there are several prices available after Step 1, TOP will be equal to the price that leaves the minimum non-tradable quantity in the orderbook, in relation to both buy and sell orders with prices equal or better than TOP. Step 3: Minimisation of variation against the last traded price / reference price If there are several prices left after Step 2 and many of these prices are left without a surplus, Step 3 will define a tradable price range and determine TOP within that range, minimizing the variation against the last traded price, if available, or the reference price, if the last trade price is not available. In particular, with regards to tradable price range determination, if multiple prices are left after Step 2, the system defines a range of valid opening prices based on the following rules: if the market unbalanced quantity includes market orders, the range is set at the best limit order on the same side up to the instrument limit price (please note that the price must respect both Step 1 and 2). If best limit order price does not maximize the traded volume or minimized the unfilled quantity, then TOP range start at the first price meeting Step 1 and 2 criteria; if the market unbalanced quantity includes limit orders: 13

15 o if buy is the unbalanced side, then the range lower boundary is determined with the highest buy limit order that would remain unfilled at TOP price (included in the unbalanced quantity); o if sell is the unbalanced side, then the range higher boundary is determined with the lowest sell limit order price that would remain unfilled at TOP price (included in the unbalanced quantity). If at opening, an instrument series has no last trade price and no reference price or it is set to 0 and the Pre-Opening book shows only market orders on both sides, the instrument series will be set to reserved status. The following example illustrates the definition of a price range: Reference Price = 1.25 Orderbook during Pre-Opening phase Buy Sell Order # Quantity Price Price Quantity Order # MKT the initial price range is 1.05 (Order 1 on the Sell side) to infinite (the market order (MKT) on the Buy side) the engine validates the price if the Reference Price is located within the range if the reference price is 1.25, the opening price will be set at 1.25 the remaining quantity of the market order will be booked at 1.25 b. Validation (Immediate) The Trading System does not accept any more new orders or modification/cancellation of existing ones and verifies the validity of TOP according to specified price limit variations. c. Opening (Immediate) For each Instrument Group that switches to the Opening state, SOLA notifies all Member Firms and data vendors with one message. If last TOP is validated, trades for each instrument series are executed at that price, otherwise a volatility auction starts with each series assigned the reserved status Order book Trading LSEDM s Order book operates different matching algorithms on a product-by-product basis: i) Price- Visibility-Time priority, and ii) Pro-rata matching. A summary of the matching algorithms applied to each product traded on LSEDM is given in Appendix B. All executed trades on the LSEDM Order book will contribute to price and quantity updates in the Market Data Feed (HSVF). Please refer to Appendix A for a detailed description of trading phases across products traded on LSEDM. Section 6 (Risk Controls) of this document describes controls applicable to LSEDM Order Types Orders of the following type may be placed by Members: by Price type: limit order, market order, top order, stop (loss) order, if touched order; by Quantity type: minimum quantity order, iceberg order (iceberg orders not available for Interest Rate products); by Duration type: day order, good till day (GTD), good till cancelled (GTC), immediate order (FAK/IOC), while connected order. For a full list of Order Types and availability of such order types depending on the applied matching algorithms, please see Appendix C. 14

16 Placing and Cancellation of an Order On placing an order by way of the Trading System, a Member shall provide the following information: the Series, Type / Style, Class and the Listed Product in question; the Expiration Month; whether its order is to buy or to sell; in case of an Options Contract, whether it is a Call or a Put; the price for the order; the order's volume; whether it is a Limit order, Market order or a Combination order; the Account to which the transaction, if executed, is to be allocated; if appropriate, the identification code of the Client for whom the order has been placed. On placing an order into the orderbook, Members should ensure that the value of the order does not exceed the maximum permitted size for the Contract in question, Members should note that any order placed on the orderbook which exceeds the applicable maximum permitted size shall be rejected. Members will receive a message stating this. Price and Quantity restrictions are detailed in Appendix D. The Tick size applicable for trading on the orderbook is described in the relevant Contract Specification. An order will remain valid and effective until an instruction to cancel is given by the Member which placed the order, or the order automatically expires as defined by its Duration type parameter. A Member may contact Market Operations to cancel an order entered on the Trading System with the relevant order details (instrument, price, quantity, time etc). Members wishing to remove all their orders from the orderbook in one go should contact Market Operations, who can perform this action. Such requests must always be made by a Registered Person Modification of an order Unless cancellefd, an order will remain valid and effective until an instruction to modify is given by the Member which placed the order. a. Products based on Price-Visibility-Time priority algorithm Under the Price-Visibility-Time priority model, any modification of an Order involving its price or a volume increase is treated as the cancellation of the original Order and the submission of a new Order. Time priority of such Order shall be determined by reference to the time at which the modified Order is entered on the orderbook. Where the Order modification involves only a reduction in its volume, the ranking of original Order is not affected. Modification Price priority Time priority Quantity decrease Quantity increase* Maintained Maintained Maintained Lost Price change* Lost Lost *results in deletion of original order and entry of a new order with new price time priority and associated order number b. Products based on Pro-Rata priority algorithm Under the Pro-Rata model, any modification of an Order involving its price or an increase in the volume of an Order is treated as the cancellation of the original Order and the submission of a new Order. For Progressive and Age Pro-rata algorithm (see Appendix B), the timestamp used to determine the weight attributed to the time priority of such Order shall be determined by reference to the time at which the modified Order is entered onto the orderbook. 15

17 Where the order modification involves only a reduction in its volume, the ranking of the original order is not affected when the Progressive Prorata algorithm is implemented. Note however that priority would be lost under the Age pro rata algorithm and any modified order will get a new timestamp effectively putting it to the back of the queue. The Best Price Setter attribute of an Order, where applicable (see Appendix B), is reevaluated at any modification of the order, except in case of quantity reduction for Order that already gained Best Price Setter status. Modification Quantity decrease Quantity increase* Price change* Price priority Time priority Progressive Pro-rata Age Pro-rata Maintained Maintained Lost Maintained Lost Lost Lost Lost Lost *results in deletion of original order and entry of a new order with new priority and associated order number Modification Best Price Setter (BPS) status Orders with BPS status Orders without BPS status Quantity decrease Maintained Re-evaluated Quantity increase Re-evaluated Re-evaluated Price change Re-evaluated Re-evaluated Cancellation on Disconnection Members should be aware of the following: o When conducting the login procedure, SOLA allows for the Member to specify an inactivity interval which indicates the number of system heartbeats that must be missed before the Member is considered disconnected. If the inactivity interval is set to 0 then the user is never considered to be disconnected; o In case of member disconnection due to technical issues, all orders with Duration type parameter While Connected will be cancelled. Please note that Good Till Day and Good Till Cancelled orders will not automatically cancel on disconnection. LSEDM therefore strongly recommends the use of While Connected orders for Members that are concerned about cancellation on disconnect Bulk Quoting (product dependent) Members that have conformed to the LSEDM SAIL API are also able to send Bulk Quotes to the LSEDM orderbook through Bulk Quote Trader IDs. Bulk quotes may contain up to 280 separate quotes with LSEDM validating each quote within the message. Throttles apply as per rates described in the SAIL technical specification. Bulk Quoting is a more efficient way of sending quotes to the Trading System as only a single message is required as opposed to multiple cancellations and resends of order messages. Bulk quotes are only valid for the current trading day and not available for strategies. Members can remove quotes on disconnection by sending the Disconnection Instruction message. It is not possible to amend an existing Bulk quote; any changes have to be made by cancelling the existing Bulk quote and replacing it with a new quote, which results in a loss of time priority. Protections for Members using Bulk Quoting are described in Section 6 (Risk Controls). 16

18 Before the Opening, an Intervention Period allows bulk quote users to enter Bulk Quote data which would be used to retrieve the quote ID. The Intervention Period is only available for specific products. Members can continue to cancel orders during this period. A specific global cancellation message, applying only to quotes placed using the Bulk Quote message, can be sent by Bulk Quote users and will pull all quotes related to a specific trader on all instruments in the same class. The Trader ID and instrument Group ID are used to specify which quotes to cancel. Orders which are not entered using Bulk quotes will not be cancelled Obligations for Market Makers Firms registered as Market Makers in a certain instrument class will have to meet a set of market making obligations that are monitored by LSEDM. Market Makers should note the following: for Equity derivatives, Market Makers are requested to comply to their market making obligations by sending quotes via the Bulk Quote message in the SAIL API; for Interest Rate derivatives, Market Makers are requested to comply to their market making obligations by sending either orders or quotes via the Bulk Quote message in the SAIL API. LSEDM reserves the right to terminate the Market Maker Agreements if the Member fails to meet its obligations. LSEDM also reserves the right to withhold or cancel any incentives, including any revenue share, in the event that the Member fails to meet its obligations or terminates its Agreement early. For further information with regards to Market Making obligations, please refer to the Market Making Obligations document on the LSEDM Document Library Request for Quote (RFQ) Request for Quote (RFQ) allows any Member to broadcast a message to the whole market in a particular instrument via the HSVF market data feed. Market Makers, as part of their agreement with LSEDM, have an obligation to reply by entering a quote in to the orderbook for that specific instrument. RFQ contains: o Instrument Class; o Instrument ID Code; o Quantity (not mandatory) Strategy instruments a. Exchange generated strategies (standard combinations) For orderbook traded products, LSEDM automatically makes available for trading a predefined set of strategy instruments. Please refer to Appendix F for the list of available standard combinations and their related characteristics. b. User generated strategies (flexible combinations) On all orderbook traded Futures and Options, LSEDM has enabled SOLA functionality that allows users to create their own strategy instruments and list them on the orderbook as standalone products available for trading by other Member Firms. Derivatives strategy trades can be executed via both Strategy v.s. Strategy and Strategy v.s Legs functionality. Where a Strategy Instrument can be executed against another Strategy Instrument, the trade will be executed on the terms of the matching Strategy Instrument provided that it is not possible to execute the Strategy against Legs on the orderbook on better terms. 17

19 A strategy can have a maximum of four legs. Each leg of the strategy must: (a) contain instruments with the same contract size, and (b) have legs that appear in natural number ratios, i.e. as multiples of the smallest leg size in increasing order 4. Market participants will need to enter the net price of the strategy i.e. the sum of the price of each leg. SOLA automatically validates the price and quantity before allowing completion of the execution. Strategy instruments interact with Circuit Breakers. Trades executed in Strategy instruments contribute to price and quantity updates to the Market Data Feed (HSVF). A strategy may be placed as either a Limit order or a Market order. See Appendix C for more details. Using dedicated messages available within LSEDM s SOLA APIs, developers can create frontend solutions with pre-configured strategies. For further details, please see the LSEDM Technical Documentation (SAIL Specification and FIX Specification). For further information on strategies, please refer to the Strategies documentation on the LSEDM Document Library Tailor-made (Flex) series (for equity derivatives only) Tailor-made (Flex) series creation LSEDM allows for participants to create Tailormade (Flex) derivative series in the trading platform intra-day, and to report Block Trades on them. These series will be Hidden (not disseminated via HSVF as public Reference Data) and only visible to the participant that created them. Participants will be able to retrieve ISINs for Tailor-Made (Flex) derivatives through the Clearing 4 If market participants wish to enter a strategy with derivatives based on different underlyings / contract sizes, they may use the Bundled Order functionality - please refer to para of this document. System (BCS Application) or through secure FTP in Excel or CSV report formats. Member Firms will be able to create Tailor-made (Flex) series specifying the Underlying, Expiry Day/Year, Strike (only for Options), Option Style (only for Options), Instrument Type (call/put, only for Options) and Delivery Type (cash vs physical). Tailor-made (Flex) series will remain active until the expiration date specified at the moment of the instrument creation. Participants will not be able to create Tailor-made (Flex) series with same characteristics of an existing Standard instrument Conversion of Tailor-made (Flex) series to Standard series When LSEDM trading platform automatically generates a Standard series with the same parameters of a Tailor-made (Flex) series (e.g. due to the generation of new expiries, or new strikes due to movement of the underlying security), the trading platform automatically converts Tailor-made (Flex) series to Standard series. The new Standard series inherits the same ISIN as original Flex series. The series will become public and instrument data will be disseminated via HSVF as public Reference Data Bilaterally Negotiated Trades (BNTs) and Trade Reporting A Bilaterally Negotiated Trade (BNT) is a privately negotiated transaction that is a Block Trade, an Exchange of Futures for Physicals (EFP) or a Exchange of Futures for Swaps (EFS). Bilaterally Negotiated Trades may be trade reported to LSEDM during the times laid down in the Contract Specifications. Trade reporting can take place via direct entry by the Member into the SOLA platform using available functionalities and/or, where permitted, through a manual process using pre-defined templates 18

20 available on the LSEDM Derivatives Trade Reporting section. For manual trade reporting, a BNT trade report shall be sent to the LSEDM Market Supervision team via at etd.tradereporting@lseg.com and contain the following details: o the type and class of a Standard or Tailor-made Contract; o the term, if a Tailor-made (Flex) Contract; o the Strike Price; o the Option Style (if applicable); o whether it wishes to buy or to sell; o the name(s) and account(s) type of the Counterparty(ies) o Settlement type (if applicable) o Type of underlying (if applicable). Subject to LSEDM Market Supervisons review of the template each side of the trade will be registered and Counterparty(ies) will be promptly informed of acceptance. Through secure FTP in Excel or CSV formats, Member Firms are able to receive reports containing ISIN information of a BNT manually reported to aid FCA Transaction Reporting. Please contact Market Operations for further information. Trades Reports in Standard series are always published and must comply with the requirements including size and price as outlined in section 6.2 and Appendix D. Trade Reports in Tailor-Made (Flex) series will not be published thus remain Hidden and will be subject to a reasonable theoretical price validation by LSEDM Market Supervision prior to acceptance. Chapter 5 of the LSEDM Rules ( Bilaterally Negotiated Trades and Trade Reporting Rules ) details BNT and Trade Reporting rules Block Trades A Block Trade is a BNT which is permitted to be executed away from the order book in a quantity that meets a minimum volume threshold. A Block Trade can be executed between two different Members (aka committed cross ) or with a single Member acting on both sides of a trade (aka internal cross ). Block Trading is available for Standard series or Tailor-Made (Flex) series, with the guarantee of CCP Clearing with LCH. Block trades in Standard series contribute to price and quantity updates to the Market Data Feed (HSVF). Block trades in Tailor-made (Flex) series remain hidden and only visible to the participant involved in the trade. Block trades (in either Standard or Tailor-made (Flex) series) must be: above a minimum volume threshold; within certain price and risk control parameters, for example the bid/ask or reasonable theoretical price (pre-trade or post-trade, depending on the product and size); consistent with the minimum tick increment (please refer to tick increment table in the HSVF technical specification on LSEDM Document Library). A summary of Block order types, and key information on each, is given in Appendix C. A summary of minimum block thresholds and price controls on a product basis is provided in Appendix D. Further information on Risk controls is provided in Section Bundled orders (Block trades with multiple legs) LSEDM facilitates the grouping of multiple Block trades into a unique window through the Bundled order functionality. This functionality offers certainty of simultaneous execution of all the 19

21 individual legs included in the Bundled order, or no execution at all. The functionality is highly customisable, allowing market participants to create their Bundled orders with the same or different counterparty and same or different financial instruments in each leg, and an individual price for each leg. The Bundled order functionality offers an alternative to the Strategy functionality on the LSEDM platform, whilst providing additional flexibility as described below. Through the Bundled order functionality: traders can enter a Bundled order in up to 4 legs; traders can independently specify for each leg of the Bundled order: o financial instrument (e.g. Option or Future), including Standard and/or Tailor-made (Flex) series; o price and size; o Counterparty(ies); o buy or sell. the same Trader ID must be used for each leg of the Bundled order. Once the Bundled order is entered, each counterparty will receive a notification message. On receipt counterparties will be able to submit acceptance of its Leg of the Bundled order, or reject it. In case of rejection from one of the counterparties, acceptance by any other counterparty of the Bundled order will be prohibited. Pending legs will remain in the system till the daily close of the Block Trade facility (i.e. end of orderbook trading hours and/or of extended period of time where applicable) until they are all accepted. The Bundled order will be registered and sent to clearing only on acceptance of all of the counterparties. Block trade price and quantity validations are also applicable. For further information on Bundled orders, please refer to the specific product documentation available on the LSEDM Document Library Third Party order execution (Block trades for Reporting Brokers) LSEDM allows for Members registered in the capacity of Reporting Brokers to initiate electronically the execution process for a Block trade through the Third Party order execution functionality. This is an alternative to the manual Trade Reporting process, as detailed in paragraph 3.4. Through the Third Party execution functionality, Reporting Brokers are able to submit a trade as a Block Trade or Bundled order for either Standard or Tailor-made (Flex) series which has been executed between multiple counterparties: Reporting Brokers can enter a Third Party trade with up to four legs; Reporting Brokers must independently specify for each leg of the Third Party order: o financial instrument (e.g. Option or Future), including Standard and/or Tailor-made (Flex) series; o price and size; o counterparty(ies); o buy or sell. Once the Third Party order is entered by the Reporting Broker, each counterparty will receive a notification message without disclosing the names of the other counterparties (only the name of the Reporting Brokers will be visible). On receipt, the counterparties will be able to submit acceptance of its own leg of the Third Party order, or reject it. 20

22 In case of rejection from one of the counterparties, acceptance by any other counterparty of the Third Party order will be prohibited. Pending legs will remain in the system till the close of the Block Trade Facility until they are all accepted. The Third Party order will be registered and sent to clearing only on acceptance from all counterparties. Upon registration and clearing, Members will receive a confirmation of the deal and counterparty IDs will be visible. Block Trade price and quantity validations are also applicable. To register as a Reporting Broker and enable access to the Third Party Execution functionality within SOLA, please contact membership@lseg.com. Reporting Brokers may also utilise the services of approved LSEDM Reporting Broker Platform Providers (RBPPs) to submit Third Party Executions to SOLA. 21

23 Exchange of Futures for Physical (EFP) and Exchange of Futures for Swaps (EFS) EFP and EFS trades must be trade reported via pre-defined templates submitted by . An EFP/EFS trade consists of the simultaneous execution of an equity or interest rate derivatives contract (contract leg) against an offsetting equivalent amount of the Related Position Leg, such as underlying physical asset/forward (EFP) or OTC swap (EFS). EFP/EFS trades can be submitted provided that the LSEDM required conditions are satisfied, among which: the price is reasonable in light of the commercial circumstances of the buyer and the seller as well as consistent with related price controls 5. In addition, the price of the listed leg must be also consistent with the minimum tick increment for the related equity or interest rate derivative; the position leg must bear reasonable equivalence in terms of physical and/or economic properties with the underlying of the relevant contract leg, including price correlation. Upon the request of LSEDM, Members must provide a justification as to how the related position is deemed equivalent; the quantity of the Listed Leg may be any whole number quantity of a Listed Product up to the maximum order size, provided that the quantity of the Related Position Leg is broadly equivalent to the quantity represented by the Contract when considered in light of the overall economic exposure between the two legs; EFP/EFS trade report must be submitted within one hour of execution. Additional information on EFP/EFS transaction s procedure are provided in the London Stock Exchange Derivatives Market Bilaterally Negotiated Trade Guidance" document BNT cancellation Requests for cancellations of BNT trade reported through a SOLA functionality and/or, where permitted, a manual process using pre-defined templates should be made to LSEDM Market Supervision, in accordance with the procedure and timings as per Chapter 5 of the Rules, available on the LSEDM Document Library. 5 The Exchange applies price controls on all EFP and EFS transactions in line with those applicable to corresponding Block Trades. For interest rate derivatives price controls at +/- 20% from the BBO in the orderbook. In cases where there is no BBO in the orderbook at the time the EFP or EFS is reported, the Exchange may use +/- 20% from the last BBO in the orderbook as a guide although discretion will be applied in appropriate cases. For equity derivatives the price controls in Appendix D Controls apply. 22

24 Application API and Connectivity LSEDM TRADING 4. Connectivity and Access A list of Accredited Connectivity Partners can be found at the following link: Trading Clearing Market Data b) Extranex Customer Managed Connectivity (CMC) Extranex Colocation: Exchange Hosting Third parties (NSPs/VANs) Internet VPN SAIL API FIX 4.2 API BCS API for equity based derivatives LCH Synapse for interest rate based derivatives HSVF API Extranex provides our customers with a managed connectivity service at a range of speeds for access to LSEG Colocation: Exchange Hosting Members may choose to house their servers in LSEG s datacentre in close proximity to the LSEDM servers. For further information on this connectivity option please contact hosting@lseg.com. Solutions ISV* or Member In- House GUI * See the LSE website for a full list ISV provid ed GUI* ISV GUI * Market Data Vendor* Please refer to the Connectivity section of the LSEG website for further details on connectivity options listed below Physical Connectivity Direct Connectivity a) Customer Managed Connectivity (CMC) Customer Managed Connectivity (CMC) provides customers with additional choice and flexibility, when directly accessing the LSEG. Utilising an optimised network infrastructure, engineered for low latency, resiliency and scalability, customers are able to access LSE markets by procuring point to point circuits to LSE datacentres from a number of Accredited Connectivity Partners Third Party Connectivity: Network Service Providers (NSPs) As an alternative to connecting directly to the LSE services, clients are able to connect via third party accredited Network Service Providers (NSP). Members contract with the NSP for provision of network connectivity but sign agreements directly with the LSEDM for access to our trading and information services. Clients using an NSP connection will have individual service enablement s set up on our trading, clearing and information systems. The data and trading feeds (APIs) are in exactly the same format as those received by a direct customer and are subject to the same testing requirements. A list of all current NSPs for LSE can be found within the NSP section of the LSE website Third Party Connectivity: Vendor Access Networks (VANs) VANs provide an end-to-end solution comprising network connectivity and pre-conformed software 23

25 applications through which their clients can interface with the LSEDM Internet VPN Clients can access LSEDM using a local internet connection. Clients can choose from a managed or client managed VPN service. For further information on connectivity options please contact connectivity@lseg.com Vendor Software Solutions a) MDVs, ISVs and VANs A full list of LSEDM conformed Front, Middle and Back Office Independent Software Vendors (ISVs), Market Data Vendors (MDVs) and VAN providers can be found on LSE website at the following link: b) Reporting Broker Platform Providers This service for accredited LSEDM Reporting Broker Platform Providers (RBPP) to connect to and interface with the Third Party Execution functionality on LSEDM for the electronic reporting of block trades. Member Firms who utilise RBPPs to report their Third Party Executions must be Derivatives Market registered in the capacity of Reporting Broker. RBPPs are required to undergo an accreditation process to ensure they meet the Exchange's requirements for functionality, security and resilience. For further information on how to become a RBPP on LSEDM, please contact: connectivity@lseg.com. c) BCS Clearing Application (available for equity derivatives only) Members can develop directly against the LSEDM clearing API, however most clearing members will take the LSEG BCS application to enable them to view reports, perform give ups / take ups, move trades between accounts and perform other post trade administration. The following BCS documents are available in the LSEDM Document Library: LSEDM701 BItS Clearing Station (BCS) User Manual LSEDM702 BItS Clearing Station (BCS) Application Data Layouts LSEDM703 BItS Clearing Station (BCS) Technical Notes 4.6.BCS FTP Service LSEDM clearing reports are available via an FTP site accessible with a user name and password. Contact Technical Account Management for FTP Service documentation Trading APIs LSEDM provides two derivatives trading APIs that applications can be developed to. These are: FIX 4.2 SOLA Access Information Language (SAIL) The native SAIL API provides a slight latency advantage over the FIX API along with additional functionality for bulk quoting. The following FIX and SAIL documents are available in the LSEDM Document Library. including the SOLA Release documentation: LSEDM200 FIX Business Design Guide LSEDM201 FIX 4.2 Specification 24

26 LSEDM300 SAIL Business Design Guide LSEDM301 - SAIL Specification 4.8. Drop Copy The drop copy feature allows drop copy participants to receive a copy of all order acknowledgements and trade notifications that belong to a specific Member. LSEDM provides two versions of the drop copy: SAIL drop copy, available for both Equity and Interest Rate derivatives; FIX drop copy, available for Interest Rate derivatives only. Drop copy messages are all sent using the SAIL / FIX protocol, regardless the protocol used for the Member s original order. Drop copy messages included in the SAIL and FIX versions are detailed in the below table: Message types SAIL Protocol FIX Order Acknowledgement KE 35=8 Order Modification Acknowledgment Order Cancellation Acknowledgment KM 35=8 KZ 35=8 Leg Execution Notice NL 35=8 Execution Notice NT 35=8 Update Order Notice NU 35=8 Execution Cancellation Notice NX 35=8 Leg Execution Cancellation Notice NY 35=8 Order Cancellation Notice NZ 35= Market Data API LSEDM provides a single market data API that applications can be developed to. This is: a) High Speed Vendor Feed (HSVF) HSVF disseminates trades, quotes, request for quotes, market depth, trade cancellation, strategies, bulletins, instrument keys, instrument summaries and administrative messages for all order-book traded derivatives on LSEDM. HSVF uses a TCP/IP broadcast interface. Users may subscribe to: Level 1 data best bid and ask price and aggregate size, last trade price and size and other market data as detailed in the documents listed below. Level 2 data level one data augmented with a further four levels of price depth and size For more information, please refer to HSVF documentation available in the LSEDM Document Library. Members wishing to redistribute market data must do so under the terms of the ILA and should refer to our Tariff Schedule, or contact the LSEDM Business Development team for more information Clearing API LSEDM provides a clearing API that applications can be developed to for the purpose of allowing clearing processing and trade administration. Two different type of clearing APIs are available, respectively for Equity and Interest Rate derivatives. The related documentation is available in the LSEDM Document Library. For more information on drop copy functionality please refer to the LSEDM Document Library. 25

27 5. Market Operations and Clearing 5.1. Transaction reporting and Market Identifier Code (MIC) Every unique series on LSEDM has an associated ISIN code. This ISIN is a unique identifier that can be used for transaction reporting purposes. Each series can also be identified by its unique series level code, described in the Section (symbology). When LSEDM trading platform automatically generates a Standard series with the same parameters of a previously created Tailor-Made (Flex) series with a standard expiration (due to the generation of new expiries, or new strikes due to movement of the underlying security), the trading platform automatically converts the Tailor-Made (Flex) series to Standard series. The new Standard series inherits the same ISIN as the original Tailor- Made (Flex) series. Series will then become public and instrument data will be disseminated via HSVF as public Reference Data. The Market Identifier Code (MIC) for LSEDM is XLOD, while the Exchange ID is: E for Equity derivatives; R for Interest Rate derivatives. LSEDM uses the LEI for London Stock Exchange Plc: D1EI4B9WTWWD Central Counterparty Protection All Future and Option Contracts traded or reported on LSEDM will have LCH acting as Central Counterparty. At the point of trade registration, trades are novated to LCH, whereby LCH becomes the long position against the short counterparty to the trade, and the short position against the long counterparty to the trade Margining and Position Controls Equity derivatives For Equity derivatives, initial margin is calculated and collected by LCH using London SPAN V 4.0. There are three major inputs to the London SPAN margin calculation, Positions, Prices and Parameters (determined by LCH and reviewed on a regular basis). Any change to any one of these parameters will result in a change to the margin requirement. Please refer to the SPAN parameters on the LCH website. LSEDM calculates daily variation margin of a members profits or losses using the Daily Settlement Price to mark-to-market open positions. The collection/return of variation margin is administered by LCH. Derivative outurns with the exception of LSEDM Norwegian contracts benefit from margin offsets and optional cross trade source netting through LCH EquityClear Service. Buyer elections on all physical delivered contracts, excluding LSEDM Norwegian contracts, will be allowed under the EquityClear Service. Members will have the ability to choose an option or combination of options, in a participating Corporate Action giving more control over their investments, as opposed to the current default option process. LCH will request margin on all positions and it is each member s responsibility to meet their margin requirements 5.4. Interest Rate derivatives a. Initial Margin (IM) methodology The IM methodology is based on an historic valueat-risk (HVAR) simulation and forms part of LCH s harmonised Portfolio Approach to Interest Rate Scenarios (PAIRS) model for estimating margin across its clearing services. 26

28 b. Initial Product Coverage The products listed below are categorised into two distinct groups, namely STIR futures and Government Bond futures. Underlying STIRs Government Bonds c. Pricing methodology Instrument Three month Euribor futures Three month Sterling futures Schatz futures Bobl futures Bund futures Long Gilt futures Underlying LCH s approach to pricing the various products listed above is the principle of forward pricing. Specifically, STIR futures are priced in accordance with the relevant underlying forward interest rate, while Government Bond futures are priced in accordance with the relevant underlying cheapest-to-deliver (CTD) bond i.e. as evaluated on a forward basis. Each class of product has a specific (closed-form) pricing function as detailed below. Relevant Risk Factors: 1) Index Curves 2) Sovereign Discount Curves 3) Repo / General Collateral (GC) Curves 4) Foreign Exchange Rates Index curves are used to estimate / project forward interest rates, which are in turn used to price the range of 3-month STIRs futures. The sovereign discount and repo / GC curves are used to forward-price the various CTD bonds that underlie the range of Government Bond future contracts Give Ups When one side of the trade needs to be given up to another Clearing Member, it is the responsibility of the reporting member to request that both the buy and sell side of the trade go onto their own account; they will then be required to manage any give ups with their GCM directly Account Structure Members can request the following types of account from Membership through a request to membership@lseg.com: Client account; House account; Market Maker account (for Member Firms registered as Market Makers). Membership will supply the Member Firm with a Static Data Form which should be used to specify account set up requirements. The member can segregate business as required. Through LCH, LSEDM currently offers Clearing Members both Omnibus Segregated Accounts (OSAs), i.e. an account held by the Clearing Member for the purposes of holding positions for one or more Clients (which may or may not be known by the Clearing House) and Individual Segregated Accounts (ISAs), i.e. an account held by the Clearing Member for the purposes of holding positions for a single named client Market Operations and Clearing Processing Timetable Please refer to Appendix A for a detailed description of trading and clearing phases across different products. 27

29 5.8. Clearing reports a) Equity derivatives Members can extract reports summarising their activity on LSEDM from the clearing APIs and from clearing applications. In addition, LSEDM clearing reports are available via an FTP site accessible with a user name and password. Contact Technical Account Management for FTP Service documentation. b) Interest Rate derivatives The Synαpse clearing system provides Clearing Members with a set of daily intraday and end-ofday reports and data extracts. Clearing Reports are available to Clearing Members in PDF and CSV format within Synαpse and also can be downloaded from Member Web or SFTP Data extracts can be downloaded from Member Web in XML format (content specification details can be found in the XML Specification Document) Banking reports are available via Member Web Synapse reports in XML PDF and CSV format are available on Member Web for 15 business days Exercise, Assignment and Settlement Equity derivatives a) Exercise and Assignment Currently, LSEDM offers two options styles on its equity derivatives markets with the following exercise windows: Option style American style European style and American style Exercise Any Trading Day from the Trade Day until the Trading Day before Expiration Day Expiration Day only All times are London times Exercise Window / manual Exercises Open Close 07:30 18:00 18:10 18:40 LSEDM applies automatic exercise for all in-themoney series. Manual exercise can be performed through the member s clearing application. b) Physically Settled Contracts If the Member holds a net Short Futures position, LSEDM shall make available normally prior to 22:00 London time on the day in question through the Clearing Application BCS, the report Expired Futures Positions to be settled MD51. This report provides details relating to the Settlement Delivery obligations for the Underlying Stock in respect of its own Account Transactions and of Transactions executed on behalf of a Client together with the Settlement Amount payable to the Member in respect thereof. If the Member holds a net Long Futures position, LSEDM shall make available normally prior to 22:00 London time on the day in question through the Clearing Application BCS, the report Expired Futures Positions to be settled MD51. This report provides details relating to the receipt obligations for the Underlying Stock in respect of its own Account Transactions and of Transactions executed on behalf of a Client together with the Settlement Amount due to the Member in respect thereof. 28

30 Where a Member Exercises an Option and the Exercise is accepted by LSEDM, or the Member is Assigned, LSEDM shall make available normally prior to 22:00 London time on the day in question through the Clearing Application BCS the report Options Exercise/Assigned to be settled MD01. This report specifies the number of Underlying Stock to be delivered by or to the Member in respect of own Account Transactions and of Transactions executed on behalf of a Client together with the Settlement Amount payable to or by the Member in respect thereof. The Member shall ensure that the information specified in the relating reports MD51 and MD01 are accurate in all respects and notify LSEDM of any discrepancy no later than 08:00 London time on the Trading Day after the affected day of Delivery or Exercise Interest Rate derivatives a) Cash Settled Contracts Three month Euribor and Sterling Futures are cash settled contracts as specified in the LSEDM contract specifications. Cash settlement is debited from or credited to the relevant Proprietary account or Client account. b) Physically Delivered Contracts Euro-Shatz, Euro-Bobl, Euro-Bund and Long Gilt futures contracts are physically delivered contracts, settled by physical delivery of the underlying at the Final Settlement Price, as determined according to LSEDM contract specifications. c) Synapse - Clearing Component At the time of expiry of a futures contract, the Synapse Clearing Component will mark the relevant instruments as Tendered, calculate the Final Variation Margin and convert any open futures into Delivery Positions. The Clearing Component will provide the Delivery Component with the delivery positions. The positions will remain as unsettled until the bonds have been delivered in the Central Securities Depository (CSD) and LCH operations have marked the positions as settled. Contingent Variation Margin (CVM) will be calculated by the clearing component whilst positions remain as unsettled. d) Synapse - Delivery Management Component The Delivery Component will co-ordinate the physical settlement of bonds. The Delivery Component will allow the Sellers to enter the necessary details to facilitate the delivery process. This will include the entry of static data, the receipt of the delivery basket details made available by LSEDM and the nominations of bonds from the delivery basket. The Delivery Component will perform the following functions: Accept the Delivery Basket (the list of eligible instruments and price factors) from LSEDM from 10 days before the start of the delivery period and then on a daily basis until the end of the delivery period Obtain Delivery positions and associated Final Settlement prices from the Clearing Component. These delivery positions will be maintained in the Delivery Component until settlement confirmation has been received Clearing Member (sellers) must enter their seller notifications nominating specific instrument(s) from the eligible basket against the futures contract they wish to provide to fulfil their delivery obligations Once the notifications have been authorised the Delivery System will then perform an allocation of Sellers bonds to the Buyers 29

31 Produce an Invoice and Account Sale and Delivery Instruction report for the Clearing Members Pass any positions in Delivery to the Risk Management Service for calculation of Initial Margin Provide delivery instructions to the appropriate CSD in order to initiate settlement LCH operations will monitor the settlement confirmations from the CSD and update the associated delivery positions as settled within Synapse. Note there will not be any capability for a Clearing Member to nominate a transferee/transferor for the Delivery process. 30

32 6. Risk Controls 6.1. Order book Price controls Circuit Breakers will activate and trigger suspension of trading when a trade occurs at a price level deemed to be an unacceptably large deviation away from static or dynamic control prices defined by LSEDM. Product Equity derivatives Interest Rate derivatives Duration of suspension of trading following Circuit Breakers 60 seconds 5 seconds LSEDM can set separate Circuit Breakers against the static control price with respect to both orders and trades. In particular market conditions, LSEDM may, with reference to markets, categories of financial instruments or individual instrument modify the maximum price variation limits, the static price, the dynamic price and other trading conditions. Definitions of control prices are as follows: Static control price the previous day closing price, as determined by the London Stock Exchange Derivatives Market (or CC&G, where applicable); Dynamic control price the last traded price in the current session. Levels set by LSEDM are detailed in Appendix D. For Stop Loss and If Touched orders, the incoming order price cannot be outside the price control thresholds detailed in Appendix D. Additionally if, when triggered, the price on such an order violates the control parameters, the incoming order is deleted and the Circuit Breaker suspension is triggered. In the event that the Circuit Breaker will continue to persist due to a member s order(s) that is outside the static or dynamic thresholds and LSEDM has taken reasonable action to contact the member in relation to that order and the member has not responded, LSEDM reserves the right to delete the order to resume continuous trading Too Deep Trading Safeguard (for Norwegian Derivatives only) The Too Deep trading safeguard validates incoming limit orders by comparing the limit price with the current order bids and offers on the order book. Limit buy orders are validated against the best offer price, and are rejected if the price exceeds the best offer price by more than the too deep limit. Likewise, limit sell orders are validated against the best bid price, and are rejected if if the price is lower than the best bid price by more than the Too Deep Limit. The Too Deep Limit states the number of ticks a limit order may deviate from the bid (for sell orders) or offer price (for buy orders) without being rejected. Too Deep Limits can be found in Appendix D Self Execution Prevention (SEP) LSEDM trading platform provides Self-Execution Prevention ( SEP ), with the purpose for market participants to avoid execution when an order crosses an opposite-side order sent by the same trading Firm on the orderbook (i.e. self matching ). SEP on SOLA is user-configurable, allowing for each market participant to specify which Trader IDs of its Member Firm will or will not be able to interact, and determine which order (incoming or resting) takes precedence. SEP applies during continuous trading for Limit, Market, Top, Stop (loss) and If-Touched orders. Basic functionality: 31

33 Market participants can define one or more Self- Execution Prevention Groups ( SEP Group ) for their Trader IDs. Members can set up their SEP Groups by contacting their Technical Account Manager at londontam@lseg.com: A SEP Group will contain one or more TraderIDs from a particular Member Firm. A SEP Group cannot include TraderIDs from multiple Member Firms. A TraderID will be allowed to be associated only to one SEP Group. SEP will take effect upon aggression of the order (before execution) and not on order entry or replenishment. The diagram above explains how the interaction between TraderIDs / SEP Groups works on SOLA. SEP Rules regulate the interaction of orders from a Member Firm and are defined at the TraderID level. Different rules can be applied to TraderIDs included in the same SEP Group. The o Orders submitted from TraderIDs within the same SEP Group will not be allowed to interact with each other; o Orders submitted from TraderIDs in different SEP Group will be allowed to interact with each other. SEP rule of the incoming order (i.e. the aggressive order) will regulate the interaction between two orders which are part of the same SEP Group. SEP behaviour is managed differently in relation to the matching algo in use by the product: for products based on Price-Visibility-Time priority, assessment of SEP rules is done 32