London Stock Exchange Derivatives Market

Transcription

1 London Stock Exchange Derivatives Market TRADING Version 7.0

2 1. Introduction Scope and Readership 5 Relevant Exchange Communication Channels 5 2. System Architecture Central System (back-end level) Access System (front-end level) 8 a. SAIL Protocol 8 b. FIX Protocol 8 c. HSVF Protocol Post Trading Systems Market Connectivity 9 a. Membership 9 b. User categories (for front-end Users) 9 c. Connection Types 10 d. Identification of Users 11 e. Throttling Product Offering Clearing and margining Market Structure Instrument Series and Groups Market Reference Data Instrument Group States 14 a. Start of Consultation 16 b. Intervention Before Opening (Order Cancellation) 16 c. Pre-Opening (Interest Rate derivatives only) 16 d. Opening (Interest Rate derivatives only) 17 e. Continuous Trading 17 f. Surveillance Intervention 18 g. End of Consultation 18 h. Mini Batch (Clearing Close) 18 i. Forbidden 18 j. Interrupted Instrument Series States Communication of Stressed Market Conditions (SMC) and Exceptional Circumstances (EC) Series Generation and Symbology Corporate Actions Treatment Rules Corporate Action Identifier Strike Price Generation Order Management Order entry and cancellation Order to Trade Ratio (OTR) limits Order modification Order messages and acknowledgement 28 1

3 a. Price Type parameters 30 b. Price parameters 32 c. Quantity Term and Additional Quantity parameters 32 d. Duration Type parameters 33 e. Stop parameters 34 f. Clearing Data 35 g. Owner Data Bilaterally Negotiated Trades (BNTs) Strategy order management Matching algorithms available on LSEDM 39 a. Best Price Setter (BPS) 40 b. First pass allocation 40 c. Residual policy Quotes Management Bulk Quoting (product dependent) 41 Market Makers and their obligations 41 Indication of Interest to Trade (IT) Connectivity and Access Physical Connectivity 43 Third Party Connectivity: Network Service Providers (NSPs) 43 Third Party Connectivity: Vendor Access Networks (VANs) 44 Internet VPN 44 Vendor Software Solutions 44 BCS FTP Service 44 Trading APIs 44 Drop Copy 44 Market Data API Clearing API Market Operations and Clearing Transaction reporting and Market Identifier Code (MIC) 46 Central Counterparty Protection 46 Margining and Position Controls 46 Give Ups 47 Account Structure 47 Clearing reports 48 Exercise, Assignment and Settlement Risk Controls Exchange level controls User defined controls 53 2

4 9. Tariff Models Contacts Appendix A 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 vs. Settlement FTSE 100 Index and Index Weekly options (Order Book price control) - Trade vs. Last Stock options (Order Book price control) Too Deep Limits (for Norwegian Derivatives only) Appendix B - Futures Contracts Fair Value Ranges Equity derivatives Interest rate derivatives Appendix C Standard combinations List of Exchange-generated strategies for equity derivatives List of Exchange-generated strategies for Interest Rate derivatives Appendix D - Flexible combinations LSEDM suggested convention for user-generated strategies Appendix E - 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 Appendix F - Specifying regulatory information in order entry messages Appendix G - Trading venue, instrument, order and trade identifiers 80 3

5 Document history Issue Date Description 7.0 Changes to facilitate the Go-Live of MiFID II / MiFIR October 2017 Delisting of Derivatives on FTSE UK Large Cap Super Liquid Index June 2017 Revision of the Price-Quantity Controls for FTSE 100 and FTSE 100 weekly options April February January 2017 Change of the Price Controls for EFP transactions in EQD; Updated SEP description to reflect latest set up for Interest Rate Derivatives Introduction of EFP/EFS transactions for EQD, Review of Block Thresholds for Norwegian Derivatives Review of Price Controls and Fair Value Ranges; Update to Appendix B Matching algo details December 2016 Introduction of the Too Deep Trading Safeguard for Norwegian Derivatives 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 options, new Order Book price controls for weekly options in Appendix B. Update to Section 5.8 for IOB and Norwegian 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 Norwegian 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) 4

6 1. Introduction 1.1. Scope and Readership This document provides Member Firms with the knowledge and technical details that are required for accessing and trading on the London Stock Exchange Derivatives Market (LSEDM). It also provides essential information for other users such as independent software vendors (ISVs) in regards to the functional design of their applications in order to interface with SOLA using the native SOLA Access Information Language (SAIL) protocol, FIX and High Speed Vendor Feed (HSVF) protocol. Market Participants who require further technical details may refer to the Technical Specifications on FIX/SAIL protocols and HSVF Market Data which are made available in the Technical Specifications section of the LSEDM Document Library Relevant Exchange Communication Channels The SOLA Access Information Language (SAIL) is the native protocol for LSEDM s trading system, e.g. the management of orders and Market Maker quotes. The Financial Information exchange (FIX) protocol is a messaging standard developed specifically for the real-time electronic exchange of securities transactions. FIX is a public-domain specification owned and maintained by FIX protocol Ltd. The High Speed Vendor Feed (HSVF) is the SOLA native market data dissemination feed; it is a high speed transmission protocol which broadcasts real-time trading and market statistics from SOLA including information on trades, quotes, market depth, strategies, bulletins, summaries and other statistics. HSVF uses a TCP/IP broadcast interface and standardised message formatting. 5

7 2. System Architecture The LSEDM Trading System is based on the SOLA trading software application and a dedicated technological infrastructure. It provides all the information and communication services supporting the functioning of the LSEDM market. The logical architecture of the LSEDM Trading System is depicted in Figure 1 and includes: i) the SOLA System, and ii) its interconnected systems. The SOLA System provides matching functionalities and allows access to such matching functionalities for authorised Market Participants. LSEDM operates two different instances of the SOLA System: one for Equity derivatives and one for Interest Rate derivatives. The SOLA system is composed of: the Central System (or back-end level), including the SOLA Trading Engine and the SOLA Routing Engine; the Access System (or front-end level), including components Central System and Access System use IBM servers with RedHat Enterprise Linux operating System Central System (back-end level) The Central System includes: i) the SOLA Trading Engine, and: ii) the SOLA Routing Engine. The Central System processes requests transmitted by Member Firms through the peripheral systems and contains internal trading functionalities (i.e. automatic matching of orders, management of the market trading phases). Moreover, it disseminates real-time information of the Central Systems Order Book. This includes a range of messages including general notification messages and execution notification messages. The SOLA Trading Engine is the application that manages the central Order Book and trading related services. It supports Schedule Management functionality and generates feeds required by other functions (Post Trading, Market Data Dissemination as well as Order, Applications and Systems Management). The SOLA Routing Engine manages connections between Market Participants and the Trading Engine, as well as interfaces for the surveillance function. 6

8 Member Firm Data Vendors Network Hosting CMC London Extranex Price Dissemination System HSVF SOLA System Participants Market Data Dissemination Clearing House, Back Offices Order Management SOLA Routing Engine Post Trading SOLA Trading Engine Technical Help Desks & Technical Operations System Monitoring and Management SOLA surveillance system Market Operation Control Market Operation Market Surveillance Post Trading System LSEG Network Clearing System Corporate Data Warehouse (CDW) Central System Access System Interconnected Systems Figure 1: Logical architecture of the LSEDM Trading System 7

9 2.2. Access System (front-end level) The Access System enables Member Firms to access the trading functionalities of SOLA (through SAIL or FIX protocols) and to receive market data feeds through the HSVF SOLA protocol. The Access System includes six components: Order Management: supports all the order management functionalities offered by SOLA. In particular, it supports: i) SAIL protocol, which is the native protocol for order and quote management (only protocol for Market Makers to enter Bulk Quotes) and ii) FIX protocol, the international standard protocol for the management of orders. FIX is a two-way communication protocol between the trading engine and FIX client applications. The order management front-end translates inbound user messages in SAIL protocol and outbound messages into FIX protocol; Market Data Dissemination: disseminates anonymous market information to LSEDM Market Participants. This front-end includes the HSVF Gateway, which broadcasts real-time trading and market statistics; Post Trading: manages the downstream of trades to the Clearing System. Clearing Members can access trading information through the BCS interface for Equity Derivatives and LCH Synpase for Interest Rate Derivatives; The other three components (System Monitoring and Management; SOLA Surveillance System; Market Operation Control) provide real time and historical data to teams involved in the analysis and reconstruction of market events. Furthermore, they provide functionalities related to the management of systems through graphical user interfaces. a. SAIL Protocol The SOLA Access Information Language (SAIL) protocol is the native protocol for SOLA. The SAIL protocol determines the data flow from a technical point of view and predefines syntax and formatting for technical messages of business-related data content. b. FIX Protocol The LSEDM platform utilises FIX with a few exceptions as specified in the FIX Design Guide. Market Participants who intend to be Market Makers using the Bulk Quote functionality must use the native SOLA Access Information Language (SAIL) protocol. c. HSVF Protocol HSVF is the native protocol for market data. It is TCP/IP broadcast interface. Each message type is fixed in format and messages are non-blocked (i.e. the SOLA System does not wait for acknowledgement before sending the following message). Retransmission of data is available. HSVF messages consist of a standard message header followed by the message body, which varies in format according to the message type. Main features of the HSVF protocol are: Connection: no authentication is provided by the system; participants connect to specific ports and then send a connection message (RS message); End of day messages: - END OF SALES (S), market close confirmation - END OF TRANSMISSION (U), no more HSVF messages will be sent for the day after this message Users customization: members can tailor the content of the market data feed to their needs using the connection message subscription mechanism. Members can request messages for: - Subsets of underlying (e.g.: underlying xyz only, or as many underlying as desired) - Derivatives instrument types (options, futures or both) - Data type (market depth, top of book, trades, referential data); 8

10 Aggregated Order Book: aggregated Order Book data is available in real time (no holdback timer is provided); 2.3. Post Trading Systems The Clearing system: Core function of the Post Trading System providing clearing and settlement technology, as well as risk management services in form of a margin system by LCH. More information on CCP services from LCH can be found here Market Connectivity Member Firms may connect to SOLA during service times set out in section 3.3. The following paragraphs describe how connections to the trading system are managed by SOLA. a. Membership Member Firms are provided with dedicated profiles to access the SOLA System. These profiles are assigned according to the membership profile and User category requested by the Member Firm via the Member Portal. Each Member Firm is assigned a unique identification code (Member ID). b. User categories (for front-end Users) Front-end Users (henceforth Users ) can apply for the following User categories to access the trading system: Standard User; Advanced User; Reporting Broker User; Basic Quoting User; Additional Quoting User; Panic Quotes User; MT User; Risk Manager User; Drop Copy User. Each User is associated to: i) a Connection Type; ii) a specific capacity limit in terms of the maximum number of allowed transactions per second (tps) and iii) trading privileges. A Member Firm can apply for several Users at the conditions defined in the Connectivity Charges document in the LSEDM Document Library. User Category Connection Type Capacity Limit Description Standard User OR (Order Routing) or FX (FIX) connections types Max. 30 (single order) tps Advanced User OR (Order Routing) or FX (FIX) connections types Max. 90 (single order) tps Reporting Broker User IDB (Interdealer Broker) Max 30 (single order) tps Allows an Interdealer Broker to enter PR Proposal Request messages. Risk Manager User RM (Risk Manager) Allows a Member Firm ( Risk Manager ) to set up and manage Pre- Trade Validations controls (described in section 8.2.6) to constrain the trading activity of its controlled Managed Entity. Drop Copy User DC (Drop Copy) Allows Member Firms to receive all orders and trades sent by all the traders of the Member Firm. User Categories reserved to Market Makers 9

11 User Category Connection Type Capacity Limit Description Basic Quoting User Bulk Quotes (BQ) Number of tps (Bulk Quotes or Global Cancels) based on Market Maker obligations (100 single quotes per each BQ) Includes one or more tps which can be Bulk Quotes or Global Cancels. The number of allowed BQ per second is equal to the number of underlyings/groups covered by the Member Firm s Market Maker obligations. This value is rounded up, and a minimum of 4 BQ per second is guaranteed. The Market Maker can: distribute the available tps among one or more Basic Quoting Users request additional tps (in sets of 4). Each BQ comprises a maximum of 100 single quotes, which has to be sent on instruments belonging to the same group. Panic Quotes User Panic Quotes (PQ) Allow to cancel orders and/or quotes inserted through a Quoting User. Market Makers can send a number of Panic Quotes allowing cancelling all orders and/or quotes inserted on every underlying covered by their quoting obligations. PQ are structured in line with BQ, thus allowing cancelling a maximum of 100 single quotes for each transaction. MT User Max. 50 (single order) tps Allows for all actions as listed under the OR and BQ user Table 1: User Categories in SOLA c. Connection Types Available Connection Types are: OR (Order Entry): available to all Member Firms to enter, cancel, modify orders and to submit request for quotes; BQ (Bulk Quotes): usually reserved to Market Makers. Allows to respond to request for quotes and to insert quotes on the market through dedicated SAIL messages, including up to 100 single quotes in a single message; MT: allows for all actions for Connection Types OR and BQ (see above); IDB (Interdealer Broker): Connection Type for Reporting Brokers to enter Proposal Requests (PR); PQ (Panic Quotes): reserved to Market Makers. Allows to jointly cancel order and/or quotes through dedicated messages (SAIL Global Cancellation Message GC), including up to 100 single quotes cancellations in a single message via SAIL protocol; RM (Risk Manager): available to all Member Firms on request. Allows Member Firms ( Risk Managers ) to control Pre-Trade Validation functions (in section 8.2.6) including the set up of dedicated trading limits and trading controls of the Managed Entity ; DC (Drop Copy): available to all Member Firms. Allows to receive all the orders and trades sent by all traders of the Member Firm via SAIL Drop Copy; FX: available to all Member Firms to enter, cancel, and modify orders via FIX. Each User is associated with a specific Connection Type, allowing interacting with the platform using a specific set of Message Types, as described in the following table: Connection Types Message Types OR BQ MT IDB PQ RM DC FX Order Entry OE OE D Order Modification OM OM G Order Cancellation XE XE F 10

12 Connection Types Cross Entry OX OX s Bundle Order BO BO AE Proposal Acceptance OB OB AR Proposal Cancellation XP XP AR Proposal Request (available only for Third Party execution functionality) PR PR PR AE New Strategy Instrument ON ON c Request For Quote RQ RQ RQ R Bulk Quotes RP, BD, Qi RP, BD, Qi Global Cancellation (for orders / quotes / both) GC GC GC Risk Limits Configuration Risk Limits Usage Notice Risk Master Switch (for orders and quotes) MK, MQ MN RT Order Mass Status Request List of Securities Request Table 2: Connection Types to SOLA AF c Any message not supported by the Connection Type of the selected User will receive an Error message reporting the associated error code. d. Identification of Users Each Member ID is provided with one or more pairs of User IDs and Passwords (one pair of User ID and password for each subscription). The format of a User ID is the following: [Connection Type] [Incremental User Identifier] where: [Member ID] Connection Type is a two letter acronym identifying the Connection Type (OR, BQ, PQ, RM, DC, FX); Incremental User Identifier is an incremental number identifier for each User attributed to a Member Firm, starting at 01 for each Member ID; Member ID is the Member Firm s code. The following are the formats for the available User IDs, where XX is to be replaced by an incremental number Identifier, starting at 01 for each Member ID: OR + XX + CED Code (OR = Order Routing) BQ + XX + CED Code (BQ = Bulk Quote) PQ + XX + CED Code (PQ = Panic Quote) RM + XX + CED Code (RM = Risk Manager) DC + XX + CED Code (DC = Drop Copy) FX + XX + CED Code (FX = FIX). Each Member Firm will be attributed one Standard User (associated with the OR Connection Type, allowing for order entry, order cancellation, order modification and RFQs). In addition, each Member Firm acting as a Market Maker will also be attributed: 11

13 one Basic Quoting User (associated with the BQ Connection Type, allowing for Bulk Quotes [section 5.1], Indication of Interests [section 5.3] and Global Cancellations [section 8.2.2]); one Panic Quote User. Additional Users are available on request. Example of User IDs for a Member Firm (code 1234) with a Standard User and a Drop Copy User: OR011234: DC021234: OR = Connection Type: Order Routing 01 = Incremental User Identifier: = Member ID (CED code): 1234 DC = Connection Type: Drop Copy 02 = Incremental User Identifier: = Member ID (code): 1234 e. Throttling A throttling mechanism is implemented in SOLA in order to avoid system overload in case of peaks of transactional activity. Accordingly, each User category is assigned a maximum number of transactions per second ( tps ). The maximum number of tps allowed for each User category is described in the User Category table above. 12

14 2.5. Product Offering LSEDM operates Equity and Interest Rate derivatives, respectively. A full product list and further information on products are available in the Derivatives Contract Specifications. A full list of all instruments admitted to trading on LSEDM and instrument codes can be found in the LSEDM Product List in the LSEDM Document Library Clearing and margining All trades effected by Member Firms of LSEDM markets are centrally cleared through LCH. Further information on clearing services and information on margin methodologies (London SPAN for Equity Derivatives and LCH Spider for Interest Rate Derivatives) can be found here. 13

15 0 3. Market Structure 3.1. Instrument Series and Groups An Instrument represents an individual Series in the SOLA system. An Instrument Series is identified by its Instrument Series ID and the Instrument Group ID of the Instrument Group to which it belongs. An Instrument Series ID is represented by a 4-digits code that is unique within the Instrument Group to which the Instrument Series belongs. An Instrument Group is a set of Instruments Series governed by the same trading rules, according to the LSEDM Rules. Each Instrument Group is identified by an Instrument Group ID. The list of the Instrument Groups and Instrument Group ID can be retrieved via HSVF protocol Market Reference Data HSVF Summary (N/NF/NS) and Instrument Keys (J/JF/JS) messages disseminate LSEDM market reference data. These messages are sent at the start of the day and in the following circumstances: Summary messages (N/NF/NS): - at the beginning of the day to list the tradable instruments for the current day. These messages contain trading relevant data such as Open Interest, Previous day Settlement Price and Closing Prices; - after a trade cancellation. These messages will contain some statistics such as High, Low, Volume, Last Price; - at calculation of the settlement prices; - at the end of the evening session. These messages will contain trading statistics (High, Low, Last, Volume) including relevant data for the next day such as Closing Price calculated by SOLA, as well as Settlement Prices and Open Interest calculated by the Clearing House; - during the day if a new instrument is added. Instrument Keys (J/JF/JS) messages: - at the beginning of the trading day; - during the day if a new instrument is added; - during the day whenever the Instrument control price is being changed. These messages contain minimum and maximum price thresholds. For further details, please refer to the HSVF Market Data Technical Specification technical specification in 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 Member Firms of LSEDM and Oslo Børs Instrument Group States Each Instrument Group is associated, in each moment of the day, to a specific Instrument Group State. Available Instrument Group States for Equity and Interest Rate derivatives, respectively, are reported below Equity derivatives Times may vary depending on product and market conditions Trading Phase (all times are London times) UK Russia Norway Turkey Start of Consultation (Members can delete orders) Market 05:30 05:30 05:30 06:30

16 Times may vary depending on product and market conditions Start of Intervention Before Opening (Members can retrieve Bulk Quote ID for certain products) Start of Trade Reporting 07:30 07:30 Market 07:30 07:30 07:30 07:00 07:30/8:00 (manual/electronic) Start of Continuous Trading 08:00 08:00 08:00 07:10 End of Continuous Trading 16:30/17:00 (SSD/ID) 15:30/16:00 (SSD/ID) Surveillance Intervention / End of Trade Reporting 17:30 17:30 Surveillance intervention period ends (Members can no longer delete orders) 07:10 15:20 17:30 15:20/16:00 (electronic/manual) 17:30 18:00 18:00 18:20 17:50 End of Consultation 18:00 18:00 18:00 18:00 Mini Batch (Clearing closes) 2 (read-only access available in BCS) SSD: Single Stock Derivatives, ID: Index Derivatives Table 3: Instrument Group States for Equity derivatives Interest Rate derivatives 18:00 18:00 18:00 18:00 Times may vary depending on market conditions Products Trading Phase (all times are London times) Three month Euribor futures Three month Sterling futures Schatz futures Bobl futures Bund futures Long Gilt futures Start of Consultation 06:00 06:00 06:00 06:00 06:00 06:00 Opening Auction 3 - Pre-Opening 06:30-07:00 06:30-07:30 06:30-07:00 06:30-07:00 06:30-07:00 06:30-08:00 - Validation 07:00 07:30 07:00 07:00 07:00 08:00 - Opening 07: :30 07:00 07:00 07:00 08:00 Manual Trade Reporting (Basis Trades / Exchange of Future for Swap transaction only) Electronic Trade Reporting (Block Trades only) 07:00-20:30 07:30-18:00 07:00-20:30 07:00-20:30 07:00-20:30 08:00-18:00 07:00-21:00 07:30-18:00 07:00-21:00 07:00-21:00 07:00-21:00 08:00-18:00 Surveillance Intervention 21:00 18:00 21:00 21:00 21:00 18:00 Send Reference price 21:15 21:15 21:15 21:15 21:15 21:15 End of Consultation 21:15:30 21:15:30 21:15:30 21:15:30 21:15:30 21:15:30 Table 4: Instrument Group States for Interest Rate derivatives SOLA notifies all Market Participants when an Instrument Group switches to a different Instrument Group State. This is done by sending a GROUP STATUS CHANGE NOTICE message indicating the Instrument Group ID and the Instrument Group's new State: - SAIL: message NG; - FIX: message NG; - HSVF: messages GR, GS and GC. 2 Until clearing closes at 18:00, Member Firms are able to perform post-trade transactions such as give ups/ take ups, position transfers and close outs in the Clearing System. 3 Opening Auction is not available for Strategies. 4 Refers to exact time i.e. no random period set (valid for all products). 15

17 In case trading is interrupted for the whole LSEDM market, Market Participants will receive one INSTRUMENTS GROUP STATUS CHANGE NOTICE for each Instrument Group. Instrument Group States are described below Scheduled Instrument Group States a. Start of Consultation SOLA does not notify Market Participants of the switch of Instrument Groups to the Start of Consultation State. Only Market Operations and Market Supervision teams can operate on Instrument Groups in this State (no actions are possible by Member Firms). In particular, order entries are not allowed, Market Operations can perform order deletions for a specific Instrument Series or global deletions of a specific Member Firms' orders. b. Intervention Before Opening (Order Cancellation) SOLA notifies all Market Participants via HSVF with one message for each Instrument Group that switches to the Intervention Before Opening State. For Instrument Series in Intervention Before Opening State, Member Firms are only allowed to cancel orders/quotes. SOLA also automatically cancels orders having prices that are not consistent with the order price threshold parameters. Data is disseminated to Market Participants via HSVF and SAIL/FIX.. c. Pre-Opening (Interest Rate derivatives only) 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 Market Participants 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 Order Book during the Pre-opening state or Instrument in the reserved status 5 : the first level displays the TOP as an aggregated price level; if there are market orders in the Order Book, the TOP level is split as follows: - the side(s) of the Order Book with market order(s) contributing to the TOP level displays the aggregated market order price(s) in the second level - subsequent level display aggregated limit order(s) contributing to TOP; subsequent levels display the additional prices that would not match TOP. c.1) Theoretical Opening Price calculation (Interest Rate derivatives only) 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 Order Book, 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 5 Reserved status of a Instrument refers to an intra-day auction. 16

18 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: - 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); - 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 Order Book during pre-opening phase Buy Sell Order # Quantity Price Price Quantity Order # MKT $ $1.00 Table 5: Example of a price range 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 c.2) Validation (Interest Rate derivatives only) SOLA 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. d. Opening (Interest Rate derivatives only) For each Instrument Group that switches to the Opening state, SOLA notifies all Market Participants 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. e. Continuous Trading SOLA notifies all Market Participants via HSVF with one message for each Instrument Group that switches to the Continuous Trading State. Orders are associated and trades executed in real-time, according to the prevailing matching rules. All actions on orders (including internal/committed cross orders) and quotes (including Request for Quotes) are available to Market Members on Instrument Groups in Continuous Trading State. 17

19 f. Surveillance Intervention Market Participants may receive certain messages during this phase (e.g. Group or Instrument State change notices). During this State, Market Members, Market Operations are entitled to perform Order cancellations on Instrument Groups. g. End of Consultation Marks the end of a trading day. Member Firms will be unable to perform actions on the Order Book after this State. h. Mini Batch (Clearing Close) Orders whose validity date has expired are deleted. Statistics for each Instruments Series are automatically reset by the system (high, low, volume). Notifications of expired orders are sent to Member Firms (or upon next connection). The Mini Batch marks the end for post-trade transactions. Hence, no more actions are available on Instrument Groups after Mini Batch State) Manually Triggered Instrument Group States i. Forbidden SOLA notifies all Market Participants via HSVF with one message for each Instrument Group that switches to the Forbidden State. Forbidden State is triggered manually by Market Supervision. Order cancellation is the only available action on Instrument Groups in Forbidden State which will be disseminated via HSVF. j. Interrupted SOLA notifies all clients Member Firms and data vendors via HSVF with one message for each Instrument Group that switches to the Interrupted State. No action is available on Instrument Groups in Interrupted State. Instrument Groups are manually set to the Interrupted State by Market Supervision and is normally triggered when an Instrument Group must be temporarily suspended from trading Instrument Series States States of Instrument Series normally follow the States of its Instrument Groups. Market Supervision may, however, assign an specific State to an Instrument Series, independently by its Instrument Group. The following Instrument Series States can be in place during the trading day: Normal: States follow the States of its Instrument Group; Forbidden: see description above; Reserved (Interest Rate derivatives only): this Instrument Series State is automatically activated in case the Opening Price cannot be determined or is invalid; Suspended: this Instrument Series State is automatically activated in case a Circuit Breaker is triggered (see 8. Risk Controls). Modifications of Instrument Series States are announced via INSTRUMENT STATE CHANGE NOTICE (NI) message specifying, amongst other parameters, the new Instrument Series Status of the Instrument Series, as well as the type of action which triggered this change. 18

20 Standard schedule (for Instrument Groups) Orders Quotes Strategy GroupStatus Entry Modify Cancel Start of Consultation NO NO Intervention Before Opening YES/NO (EQD/IRD) Cross / Committed Entry Modify Cancel Creation Orders and cross order entry NO NO NO NO NO NO NO NO YES NO NO NO YES NO NO Preopening* YES YES YES NO YES YES YES NO NO Continuous trading YES YES YES YES YES YES YES YES YES Surveillance Intervention NO NO YES NO NO NO NO NO NO End of Consultation NO NO NO NO NO NO NO NO NO Mini Batch NO NO NO NO NO NO NO NO NO Exceptional States Instrument Hidden NO NO NO YES NO NO NO NO NO Forbidden NO NO NO NO NO NO NO NO NO Interrupted NO NO NO NO NO NO NO NO NO Instrument Suspended NO NO YES NO NO NO YES NO NO Instrument Reserved* YES YES YES NO YES YES YES YES YES Closing* YES YES YES NO NO NO NO NO NO * available for Interest Rate derivatives only Table 6: Allowed actions by Instrument States for Equity Derivatives (EQD) and Interest Rate Derivatives (IRD) Strategies Instrument Series State The Instrument Series State for Strategy Series is dependent on the Instrument Series State of its legs. If any of the legs of the Strategy Series is put in a not trading State, SOLA automatically puts the Strategy Series Instrument Series State to Suspended. The Instrument Series State for Strategies returns to Continuous Trading once all of its leg have switched back to that state Communication of Stressed Market Conditions (SMC) and Exceptional Circumstances (EC) SOLA disseminates messages via HSVF containing indication for market participants to handle Stressed Market Conditions (SMC) (under extraordinary circumstances Exceptional Circumstances [EC]) that are declared pursuant to the LSEDM Rulebook and MiFID II. In particular, following activation of Circuit Breakers, trading of Equity Derivatives resumes under Stressed Market Conditions that last for a period of 5 minutes unless another Circuit Breaker is triggered. Furthermore, LSEDM reserves the right to manually trigger SMC for Equity and Interest Rate Derivatives, e.g. due to increased volatility in the underlying or in related instruments. 19

21 SMC lead to relaxed obligations for Market Makers (as defined in the Market Making Obligations document) and widened Fair Value Ranges for the instruments in question (see Appendix B - Futures Contracts Fair Value Ranges). Market Making obligations are exempt during EC. HSVF BULLETIN (L) messages are disseminated at Group Level in case SMC or EC are declared by LSEDM. The BULLETIN message includes indication of the relevant Instrument Group ID and the specific event. The possible events are the following: Event type HSVF BULLETIN Type Effect on Market Making Obligations Messages triggered during SMC Messages triggered during EC SMC Start 2 Normal Market Making obligations are exempt x x SMO Start 4 Relaxed obligations apply x SMO End 5 Market Making obligations are exempt x SMC End 3 Normal Market Making obligations apply x x Table 7: BULLETIN messages for SC/EC Please note that: SMO Start might be triggered immediately after SMC Start; SMC End might be triggered immediately after SMO End; Stressed Market Conditions and Exceptional Circumstances might be declared also through free text messages disseminated via HSVF BULLETIN (L) (HSVF Bulletin Type = 1) Series Generation and Symbology The following symbology applies to derivatives available for trading on LSEDM Standardised Series Codes Each instrument is identified by a string of four to nine 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) Tailor-made (Flex) Series Codes Each instrument is identified by a string of six to twelve characters (excluding Options strike): a maximum of six characters designates the Contract Underlying 6 ; one character designates the Expiration Year; two characters designate the Expiration Day; 6 For Flex single stock derivatives with flexible settlement style, the first character of the underlying code is 1 in case of cash settlement. 20

22 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. Month IOB and Norwegian derivatives Index futures Call options Put options and SSF Futures All other products Call options Put options January A A M F A M February B B N G B N March C C O H C O April D D P J D P May E E Q K E Q June F F R M F R July G G S N G S August H H T Q H T September I I U U I U October J J V V J V November K K W X K W December L L X Z L X Tailor-made (Flex) series (for Equity derivatives only) a. Tailor-made (Flex) series creation Member Firms may create Tailor-made (Flex) derivative series in SOLA intraday and report Block Trades on them (must be above Block Thresholds, see Appendix A Controls). These series and trades will be disseminated via HSVF as public Reference Data. All Market Participants retrieve ISINs for Tailor-Made (Flex) derivatives through the Clearing System (BCS Application) or through FTP in Excel or CSV format. Generally, parameters of Tailor-made (Flex) series are the Underlying, Expiry Day/Year, Strike (for Options), Option Style (only for Options), Instrument Type (call/put, for Options) and Delivery Type (cash vs. physical). Detailed information on flexible products and parameters is available in the Derivatives Contract Specifications. Electronically submitted trades on Tailor-made (Flex) series are subject to validation checks by Market Supervision. When such trades are sent to LSEDM using the electronic trading functionality of SOLA they will be executed upon validation and execution messages will be sent to the counterparties. 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. 21

23 b. Conversion of Tailor-made (Flex) series to Standard series When SOLA 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), positions in Tailor-made (Flex) series will be converted to Standard series. The new Standard series inherits the same ISIN as the original Flex series Corporate Actions Treatment Rules Coporate Actions are conducted pursuant to the Corporate Actions Policy available in the LSEDM Document Library Corporate Action Identifier Additional letters at the end of a Series Code indicate 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 3.9. Strike Price Generation SOLA 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 SOLA continuously marks one of the series listed the ATM strike which is the series with the strike price closest to the underlying instrument price. Market Making Obligations are defined in reference to the ATM series. 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 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 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 at a price ending in either 50 points or 00 points On Request listing of additional standardised series Member Firms may request additional listing of a specific options series. This is known as an On Request listing. Requests are to be raised by phone or in electronic form to Market Operations. 22

24 Member Firms shall provide the following information: Underlying instrument; Expiration Month (with standard parameters); The Strike Price. Market Operations will confirm when the On Request Standard series is available for trading on the Order Book 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

25 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

26 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) 25

27 4. Order Management 4.1. Order entry and cancellation On order entry 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 order price; 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. lifetime of order see section 4.3.d. additional parameters as set out in Table 8 in section 4.4. With regards to order entry in the Order Book, Members should ensure that the trade volume of the order does not exceed the maximum permitted limit for the Contract in question, Members should note that any order placed on the Order Book which exceeds the applicable maximum permitted limit shall be rejected. Members will receive a message stating this. Price and Quantity controls are detailed in Appendix A Controls. The Tick size applicable for trading on the Order Book is described in the LSEDM 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 Order Book in one go should contact Market Operations, who can perform this action. Such requests must always be made by a Registered Person Order to Trade Ratio (OTR) limits Order to Trade Ratio limits apply to all Members, with separate limits applying to Members in the capacity of a Market Marker (defined as a Member Firm which has entered into the Market Making Agreement). OTR limits are set per Member, per Financial Instrument, per Trading Day. OTR limits apply in terms of Numbers (i.e. total number of orders divided by total number of trades 7 ) and Volumes (i.e. total order volume divided by total trading volume). The Volume OTR Floor is a minimum threshold of transacted volume necessary to be included in the Volume OTR calculation. Floor Ratio limit for Trading Members Ratio limit for Market Makers OTR (volumes) 10,000 lots 2,000,000 40,000,000 OTR (numbers) n/a 50, ,000 If a Member Firm breaches the OTR limit, Market Supervision may seek to engage with the Member to explore the nature of its activities that caused the breach. LSEDM may consider taking disciplinary action in following non-exhaustive cases: 7 Number of orders take into account order entries and order modifications. 26

28 Continuous breaches of the OTR limits, particularly a high concentration of breaches of over a short period of time; Where the OTR limit breaches were as a result of a system and control failure; Where the OTR limit breaches were as a result of a manipulative or abusive strategy; Where OTR limit breaches continue to occur after LSEDM has directed the Member to reduce OTR levels below OTR limits Order modification Unless cancelled, 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 Order Book. 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 Maintained Maintained Quantity increase* 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 Order Book. Where the order modification involves only a reduction in its volume, the ranking of the original order is not affected when the Progressive Pro-rata 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 section 4.7), is re-evaluated at any modification of the order, except in case of quantity reduction for Order that already gained Best Price Setter status. Modification Price priority Time priority Progressive Pro-rata Age Pro-rata Quantity decrease Maintained Maintained Lost Quantity increase* Maintained Lost Lost Price change* Lost Lost Lost *results in deletion of original order and entry of a new order with new priority and associated order number Best Price Setter (BPS) status Modification Orders with BPS status Orders without BPS status Quantity decrease Maintained Re-evaluated 27

29 Modification Best Price Setter (BPS) status Quantity increase Re-evaluated Re-evaluated Price change Re-evaluated Re-evaluated Cancellation on Disconnection Members should be aware of the following: 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; 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 Order messages and acknowledgement SOLA assigns a unique identification number to each order ( Order ID ) at order entry. Such Order ID is unique by Instrument Series and by day, and it is recorded along the life of the order, following order modifications and up to trade execution or cancellation. This way, the entire history of any order entered into SOLA is traced and can be reconstructed, if necessary. Order Entry is performed by Member Firms through the ORDER ENTRY (OE) message. The OE message is used both for Standard Series, Strategy Series, with the sole exception of Cross Orders (OX Message). To enter an order, the client sends an OE message. This message contains the Client s User Sequence ID. Key information to be specified in OE message is reported below. Please refer to Appendix F - Specifying regulatory information in order entry messages for regulatory information to be specified at order entry regarding reporting obligations to trading venues introduced by MiFID II. SOLA performs validation on the parameters of the OE message received. If validation fails, SOLA sends an ERROR MESSAGE (ER/TE) rejecting the message received and indicating the code for the first error detected and the message type for the message generating the error along with its User Sequence ID. If validation is successful, SOLA accepts the message received and populates an Order ID to the order entered. This ID is unique by instrument (e.g. ISIN) and by day. SOLA sends the client an acknowledgement for the order entered via an ORDER ACKNOWLEDGEMENT (KE) message. The ORDER ACKNOWLEDGEMENT message will contain the unique Order ID. It also contains the User Sequence ID which enables the client to reconcile the acknowledgment to the original message entered. An ORDER ACKNOWLEDGEMENT indicates that the order has been: Entered on the Order Book (Status =, status also applies to partly executed orders) Eliminated (Status = E) Executed in full, or Partially for IOC orders (Status = X) If an order is either partially or fully executed, the client receives, immediately after the ORDER ACKNOWLEDGEMENT (KE) message, one or several EXECUTION NOTICE (NT) messages providing additional information related to the transaction that took place. If the order was on a strategy instrument, the client also receives LEG EXECUTION NOTICE (NL) messages providing additional information related to the price and quantity at which each of the individual legs of the strategy instrument traded. If the order is stored on the Order Book, the client will automatically receive one of the following messages after order elimination / trade execution: One or more EXECUTION NOTICE (NT) messages; 28

30 In the case of a strategy: several LEG EXECUTION NOTICE messages (NL) in addition to the EXECUTION NOTICE. Each NL message can be linked to its parent strategy trade (EXECUTION NOTICE (NT) on the strategy instrument) message by the Strategy Instrument ID, Strategy Group and Strategy Trade Number fields; An ORDER ELIMINATION (NZ) message. All messages related to an order (execution notice, cancellation notice, order acknowledgement) contain the current Order ID and the Original Order ID. The User Sequence ID is set to zeroes. The following parameters must be specified in the OE message: 29

31 Table 8: Available Parameters in the SAIL OE message Parameter Available values Comments Relevant FIX Tag(s) Instrument Series ID Instrument identification within a Group and Group ID 55 (Symbol) Side B; S Buy or Sell 54 (Side) Price Type Price Limit; Market; Top; Committed; Exchange for Security, Basis Trade or Exchange of Future for Swap transaction See section on Price Type parameters To be defined if the Price Type is set to Limit or Committed. See paragraph Price parameters 40 (OrdType) 44 (Price) Quantity Number of contracts or shares 38 (OrderQty) Minimum Quantity (group) Includes 2 sub-fields. See paragraph Quantity Term and Additional Quantity parameters 110 (MinQty) Quantity Term Minimum; Disclosed (Optional) Not Available Additional Quantity Duration Type Stop (Group) Day; Good Till Day; Good Till Cancellation; Immediate; Good Till Connected (Optional). To be defined only when the Quantity Term is set to Minimum or Disclosed See paragraph Time Validity parameters For Stop Orders only. See paragraph Stop parameters 110 (MinQty); 210 (MaxShow) 59 (TimeInForce) Additional Price (Optional) 99 (StopPx) Special Price Term Clearing Data (group) Position Account Type Stop; Stop on Bid; Stop on Ask; If Touched; If Touched on Bid; If Touched on Ask Open; Close House; Client; Matched Principal (Optional) Includes 2 sub-fields. See paragraph Clearing Data Determines whether positions will be held gross or, where feasible, be netted with positions in the same instrument and sub-account. 40 (OrdType) set to 4 : Stop Order 3 : Stop Market Order W : Stop U.S Marker Order 5255 (StopPxCondition) 1 (Account), 8001 (Account Profile 77 (Open/Close) 47 (Rule80A) Owner data (group) Includes 2 sub-fields. See paragraph Owner Data 58 (Text) Client Order ID (Optional). Free-text field (24 characters) First 24 characters of 58 (Text) Client Reference ID (Optional). Free-text field (26 characters) Last 26 characters of 58 (Text) a. Price Type parameters The following values can be specified for the Price Type parameter: - L : for Limit Orders; - O : Opening; - W : for Market Orders; - M : for Top Orders 8 (or At Best Opposite Price ); - C : for Committed Orders 9 8 From a regulatory perspective, a Top Order is a Market Order with a particular execution algorithm. 30

32 - P for Exchange for Security, Basis Trade or Exchange of Future for Swap transactions. a.1) Limit Orders Limit Orders are submitted by setting the Price Type field of the OE message to L. Limit Orders entered into the Order Book are executed at the indicated price or at a better price, if compatible orders are available on the opposite side of the Order Book. Unless the Time Validity Parameter of the Limit order is set to Immediate, the residual volume after a partial execution of a Limit Order is retained on the Order Book, until it is withdrawn or traded. Limit Orders can be entered on Instrument Series in Pre-Opening (Interest Rate Derivatives only) or Continuous Trading State (all derivatives). Limit Orders entered during the Pre-Opening Trading Phase are executed at the Opening Price - if possible, according to the procedure described in chapter Theoretical Opening Price calculation during the Opening Trading Phase. Unexecuted (partially or completely) Limit Orders at the end of the Opening Trading Phase, unless the Time Validity Parameter of the Limit order is set to Immediate (IOC), are automatically transferred to the Continuous Trading Trading Phase, maintaining their original Price and time priority. In case the Time Validity Parameter of the Limit order is set to Immediate (IOC), the unexecuted quantity is cancelled. a.2) Market Order Market Orders are submitted by setting the Price Type field of the OE message to W. Market Orders are executed against all the available orders on the opposite side of the Order Book, ordered by price-time priority, until: i) the total quantity of the Market Order has been traded, or; ii) until all the available volume on the opposite side of the Order Book has been traded. In case of partial execution of the Market Order (happening when all the volume on the opposite side of the Order Book has been traded) and unless the Time Validity Parameter of the Limit order is set to Immediate the residual Quantity of the Market Order is automatically converted to a Limit Order, at the last price at which the traded part of the Market Order has been executed. Market Orders can be entered during the Pre-Opening (Interest Derivatives only) and Continuous Trading Trading Phase (all derivatives). Market Orders entered during the Pre-Opening Trading Phase are executed at the Opening Price if possible, during the Opening Trading Phase. Unexecuted (partially or completely) Market Orders, unless the Time Validity Parameter of the Limit order is set to Immediate (IOC), are converted to Limit Orders at the Opening Price and transferred to the Continuous Trading Trading Phase. In case the Time Validity Parameter of the Limit order is set to Immediate (IOC), the unexecuted quantity is cancelled. a.3) Top Order (or At Best Opposite Price ) Top Orders are submitted by setting the Price Type field of the OE message to M. Top Orders are executed only against the orders available at the best price on the opposite side of the Order Book. In case of partial execution of the Top Order (when all the volume at the best price on the opposite side of the Order Book has been traded), the residual volume of the Top Order is automatically converted to a Limit Order, at the price at which the traded part of the Top Order has been executed. Top Orders are available for Instrument Series in Continuous Trading State only. So, they cannot be entered when the Instrument State is set to Pre-Opening. Top Orders on a strategy instrument entered into the Order Book are also executed at the best available price in the market for the total quantity available from contra orders. However, if there are implied limits which offer a better price than the opposite real limits in the strategy book, the incoming Top Strategy order will trade at each of the implied limits until there is no more remaining quantity. If the Top Strategy order is partially filled after being matched with the implied orders, the remaining quantity will then trade against contra orders at the best executable price in its own (strategy) book. Any residual volume left after all trades (implied and own-book trades) will be booked as a limit order at the last executed price. 9 Cross Orders are executed with a specific message type ( OX ). 31

33 a.4) Committed Cross Orders Committed Cross Orders are a special orders type dedicated to Bilaterally Negotiated Trades, and are submitted by setting the Price Type field of the OE message to C. a.5) Exchange for Security, Basis Trade, or Exchange of Future for Swap transaction Matching facility to support reporting of Bilaterally Negotiated Trades consisting of the simultaneous execution of derivative against an offsetting equivalent amount of a related underlying instrument in a quantity that meets a minimum volume threshold between different members for the purpose of trade publication and clearing. Members must specify the intended counterparty and orders do not interact with the anonymous Order Book. Both sides must enter a cross order setting the Price Type parameter of the OE message to P with opposing buy and sell sides, same price, same quantity and the correct counterparty or the trades will not match. Trades not matched by the end of the trading session are automatically deleted. b. Price parameters The Price parameter must be specified for Limit Orders and for Bilaterally Negotiated Trades (it remains blank in case of Market and Top Orders). For Limit Orders, it indicates the lowest (for sell orders) or higher (for buy orders) price at which the Member Firm is willing to have the order executed. For Bilaterally Negotiated Trades, it indicates the pre-arranged price at which the Bilaterally Negotiated Trade will be executed. The inserted Price must be consistent with the relevant tick size. c. Quantity Term and Additional Quantity parameters The following values can be specified for the Quantity Term parameter: - Blank (no minimum quantity); - M : for Minimum Quantity; - D : for Disclosed Quantity. This value is available for Instrument Series in Continuous Trading State only and for Limit Orders only. It is used to implement Iceberg Orders. In case the Quantity Term parameter is set, the Additional Quantity parameter must also be indicated. The value specified in the Additional Quantity parameter cannot be higher than the value in the Quantity parameter. If the Quantity Term parameter is set to M or D, the Duration Term parameter can assume only the value J ( Day, see paragraph Time Validity parameters ). c.1) Minimum Quantity If the Quantity Term is set to minimum (Quantity Term parameter set to M ), the order has to be executed at least for the quantity specified in the Additional Quantity parameter. If this is not possible, the order is rejected. Fill or Kill orders are implemented by setting the Additional Quantity parameter equal to the total Quantity of the Order. For a strategy order with a Minimum Quantity, the Trading Engine evaluates if the order can be executed against opposite orders in the same strategy book, otherwise the order is rejected, even though the incoming strategy order may trade against implied orders for the minimum quantity specified at a better price than the market in its own-book. c.2) Disclosed Quantity ( Iceberg Orders 10 ) For Instrument Series in Continuous Trading State, it is possible to configure Limit Orders presenting a limited disclosed quantity to be filled, i.e. iceberg orders (Quantity Term parameter set to D ). Minimum notional values for iceberg orders are set to an equivalent amount of 10,000 EUR. 10 Not available for Interest Rate products. 32

34 If the Quantity Term is set to D, the order is booked for its total quantity, specified in the Quantity parameter. However, only the Additional Quantity is broadcast by SOLA. Once the Additional Quantity is filled, a new Limit Order is generated with the same price level as the original order; - a new time priority; - Quantity equal to the lower of either the Additional Quantity or the difference between the Quantity and the Additional Quantity (the Remaining Quantity ). In the case of several strategy orders from different strategy instruments, each with a Disclosed quantity, trading against an impliedout (outright) leg order, the Trading Engine will maintain a time-priority across the different strategy books if the Disclosed quantity for a given strategy order is totally traded. c.3) Limitations The Time Validity parameter for Iceberg Orders cannot be set at Good Till Day. During the intra-day volatility auctions, the Iceberg Orders will participate in the price determination (both with the displayed and non-displayed quantity; the displayed quantity must be at least equal to the minimum quantity set by LSEDM). d. Duration Type parameters The following values can be specified for the Duration Type filed of the OE message: - J : for Day ; - D : for Good Till Day ; - F : for Good Till Cancelled ; (till expiration) - E : for Immediate Orders ; - W : for While Connected Orders. OE messages for Strategies (FLEXCO) can be inserted only with Time validity parameter set to J. d.1) Day A Day Order is submitted by setting the Duration Type field of the OE message to J'. Orders designated as Day will remain on the Order Book until the order is: - executed, or; - cancelled, or; - automatically cancelled at the end of the current trading day. d.2) Good Till Day ( GTD ) A GTD Order is submitted by setting the Duration Type field of the OE message to D. GTD orders require setting also the GTD Date field to the date upon which the order must expire. Orders designated as Good Till Day will remain on the book until the order is: - executed, or; - cancelled, or; - automatically cancelled at the end of the day specified in the GTD Date field. d.3) Good Till Cancelled ( GTC ) A GTC Order is submitted by setting the Duration Type field of the OE message to F. Orders designated as Good Till Cancelled will remain on the book until the order is: - executed, or; 33

35 - cancelled, or; - automatically cancelled at the end of the last trading day of the Instrument Series of the order. d.4) Immediate Orders ( IOC ) An Immediate order (also known as Immediate or Cancel ) is submitted by setting Duration Type field of the OE message to E. IOC Orders are immediately executed against any existing orders on the opposite side of the Order Book, at the specified Limit Price or better up to the total Quantity of the IOC Order. Any residual volume after partial execution of an IOC Order is automatically deleted. d.5) FAK ( Fill and Kill ) and FOK ( Fill or Kill ) A Time Validity parameter set to E ( Immediate ) can be associated to the Quantity Term parameter in order to implement FOK and FAK orders: - FOK orders are implemented associating an "Immediate" order with the Quantity Term parameter set to M ( Minimum Quantity ) and defining an Additional Quantity equal to the total quantity of order. - FAK orders are implemented associating an "Immediate" order with the Quantity Term parameter set to M ( Minimum Quantity ) and defining an Additional Quantity equal to the Minimum Quantity desired. d.6) While Connected Orders A While Connected order is submitted by setting the Duration Type field of the OE message to W. Orders designated as While Connected will remain in the Order Book until the order is: - executed, or; - cancelled, or; - automatically cancelled following a Participant disconnection, or; - automatically cancelled in the event of a SAIL Front End failure, or; - automatically cancelled at the end of the current trading day. While Connected orders are valid only for the current trading day (as for Day orders). e. Stop parameters SOLA provides a centralised management of the Stop Loss functionality. The Stop Loss functionality is activated specifying some additional parameters in the OE message. For the purposes of this paragraph, orders submitted with an activated Stop Loss functionality will be referred to as Stop Orders. e.1) Processing of Stop Orders SOLA checks the Triggering Condition of the Stop Order only once the incoming order that has modified the price of the Stop Series has been completely processed. Stop Order is not triggered when the incoming order has activated a Circuit Breaker, because the order rejected changes the State of the Stop Series to Suspended. SOLA processes Stop Orders using, for each Instrument Series, a separate Order Book that is not visible to Member Firms (the Stop Order Book ). All orders triggered following a change of the price of the Stop Series are sorted by time priority and sequentially submitted in the instrument Order Book. Stop Orders remain inactive in the Stop Order Book of the Instrument Series until the price ( Stop Price ) is reached. e.2) Limitations SOLA allows Members to enter Stop Orders with the following limitations: 34

36 - the Stop Series must coincide with the Order Series; - Stop Order functionalities are available for Single Orders only; - the Time Validity parameter for Stop Orders can be set as Day, While Connected or GTC (refers to the order that enters the Order Book in case the price condition is triggered). - Inactive or unexecuted Stop Orders at the close of the current trading day are automatically cancelled. e.3) Additional order parameters for Stop Orders The following additional parameters must be specified in the OE message in case of a Stop Order: - Additional Price: it is the value that the price of the Stop Series must reach in order to trigger the activation of the Stop Order; - Special Price Term: it indicates the condition to be fulfilled for the Stop Order to be activated. Combines two elements: i) the relevant market price to be compared to the Stop Price (this can be chosen by the Member Firm among the last price of the Stop Series, the best buy or the best bid available in the Order Book for the Stop Series), and; ii) the condition that must be created between the market price of the stop series and the Stop Price, in order to trigger the activation of the Stop Order (higher or equal, lower or equal).the following six values are available: Value Order triggered when (Triggering Condition): for Buy orders for Sell orders - S (Stop) Last Price >= Stop Price <= Stop Price - E (Stop on Bid) Best Bid Price >= Stop Price <= Stop Price - I (Stop on Ask) Best Ask Price >= Stop Price <= Stop Price - T (If Touched) Last Price <= Stop Price >= Stop Price - F (If Bid Touched) Best Bid Price <= Stop Price >= Stop Price - H (If Ask Touched) Best Ask Price <= Stop Price >= Stop Price f. Clearing Data f.1) Position parameter Member Firms are required to define, by means of the Position parameter, if the order entered in the trading system is related to: - the creation of a new position ( Open ) - O, or - the closing of a previously opened position ( Close ) - C. When the Position parameter is not specified, the system automatically attributes the value Open to the Position parameter for Client accounts. All order in House accounts will be assigned a Close position parameter. f.2) Account Type parameter Member Firms are required to indicate, at order entry level and by means of the Account Type field, the trading capacity of each order, according to one of the following values: - own account: House or Market Maker - Client account: Client, or - matched principal account: Matched Principal. f.3) Client Code parameter (Clearing Instruction) Member Firms are required to define, by means of the Client Code parameter (Clearing Instruction), a clearing sub-account number, according to the codes available in the Clearing House systems. 35

37 g. Owner Data The Owner Data, composed by two sub-fields (the Client Order ID and the Client Reference ID ), is a parameter available at order entry level as two free-text sub-fields (with a length respectively of 24 and 26 characters) allowing storing the order date, a proprietary order identification number or any other information considered relevant by the Member Firm Bilaterally Negotiated Trades (BNTs) A Bilaterally Negotiated Trade (BNT) is a transaction that is negotiated off-exchange and subsequently reported to the exchange for execution. Members that transact BNTs must comply with provisions laid out in the Bilaterally Negotiated Trade Guidance Document and Section 5 of the Rules. BNTs 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 the ( Internal or Committed ) Cross Order or Bundled Order functionality where permitted manually using pre-defined templates available on the LSEDM Derivatives Trade Reporting section of the website through a Reporting Broker who reports the trade on behalf of multiple counterparties (Third Party orders). Post Trade details of BNTs are disseminated at trade execution. Trade execution messages of BNTs include a Special Trade Indicator field which shows that the trade has been executed as a BNT. BNTs do update neither the last trade price data nor any price statistic report but are counted in quantity statistics Block Trades A Block Trade is a BNT in a single or multiple instruments which is negotiated off-exchange and subsequently reported under the Rules of LSEDM. A Block Trade can be reported (i) electronically or (ii) manually. A Block Trade can be executed between two different Members ( Committed Cross ) or with a single Member representing himself on both sides of a trade ( 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 quantity, but do not update price statistics of the Market Data Feed (HSVF). Block trades (in either Standard or Tailor-made (Flex) series) must be: above a minimum 11 and below a maximum volume threshold; within price and risk control parameters, whereby the price controls refer to the best Bid and Offer (BBO) or last available trade / reference price A summary of minimum block thresholds and price controls for Block Trades on a product basis is provided in Appendix A Controls. Further information on Risk controls is provided in section 8. a. Internal cross order The internal cross order allows executing a trade where the two counterparties are represented by a unique Member Firm. An internal cross order is submitted by such Member Firm through the OX message. For internal cross orders, since the two counterparts are represented by the same Member Firm, a two-sided order (by the OX message) must be inserted to complete the BNT. The BNT is immediately executed, given that the price validation controls described in section are fulfilled. The price validation control is performed at order entry. 11 Minimum threshold comply with Large-In-Scale (LIS) thresholds for pre-trade transparency waivers of Regulation (EU) No 600/

38 b. Committed Cross order The Committed Cross order allows executing a trade where the counterparties are pre-determined. A Member Firm must indicate, amongst all other relevant parameters that define the order, the Firm ID of his counterparty. A Committed Cross order is submitted by setting the Price Type field of OE message to C. For Committed Cross orders, both counterparties of the BNT must submit orders corresponding to their side of the BNT. SOLA keeps the first order received in a dedicated private archive until the corresponding order of the BNT has been submitted by the other counterparty. If the two orders fully match and the quantity, notional value and price controls described in the following paragraph are fulfilled, the trade is executed. The price validation controls are performed two times, at order entry of the BNT, by each counterparty Bundled orders (for Block trades with multiple legs) LSEDM facilitates the simultaneous execution of Block trades in strategies of multiple Listed Products through the Bundled order functionality. This functionality offers certainty of simultaneous execution of all the 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. 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: - financial instrument (e.g. Option or Future), including Standard and/or Tailor-made (Flex) series; - price and size; - Counterparty(ies); - 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 Order Book 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. Bundles Ordrs are only accepted if each leg of the order complies with the price-quantity controls outlined in section 8. For further information on Bundled orders, please refer to the specific product documentation available on the LSEDM Document Library Exchange for Security, Basis Trades and Exchange of Future for Swap Market Participants may also report trades in Exchange for Securities, Basis Trades or Exchange of Future for Swap. Such trades must be reported electronically (Price Type parameter of the OE message is P ) or via pre-defined templates submitted by . These trades must consist 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 or swap. Trade reports to LSEDM are held until validated by Market Supervision. Please refer to the Bilaterally Negotiated Trade Guidance document for required conditions for such trades, additional information and procedures Third Party order execution (Bilaterally Negotiated Trades for Reporting Brokers) LSEDM allows for Members registered in the capacity of Reporting Brokers to initiate electronically the execution process for a Bilaterally Negotiated Trades through the Third Party order execution functionality. This is an alternative to the manual Trade Reporting process. 37

39 Through the Third Party execution functionality, Reporting Brokers are able to submit Bilaterally Negotiated Trades for Standard as well as Tailor-made (Flex) series which have 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: - financial instrument (e.g. Option or Future), including Standard and/or Tailor-made (Flex) series; - price and size; - counterparty(ies); - 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. 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 trade. All orders are subject to the rules for Bilaterally Negotiated Trades. 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 Strategy order management Strategy instruments a. Exchange generated strategies (standard combinations) For Order Book traded products, LSEDM automatically makes available for trading a pre-defined set of strategy instruments. Please refer to Appendix F for the list of available standard combinations and their related characteristics. 38

40 Interest Rate derivatives Equity derivatives LSEDM TRADING b. User generated strategies (flexible combinations) On all Order Book traded Futures and Options, LSEDM has enabled SOLA functionality that allows users to create their own strategy instruments and list them on the Order Book as standalone products available for trading by other Member Firms. Derivatives strategy trades can be executed via both Strategy vs. Strategy and Strategy vs. 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 Order Book on better terms. 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 13. 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 section 4.1 on Price Type parameters for more details. Using dedicated messages available within LSEDM s SOLA APIs, developers can create front-end solutions with pre-configured strategies. For further details, please see the LSEDM Technical Specifications on FIX and SAIL in the LSEDM Document Library. Instrument Series State for Strategy Series is dependent on the Instrument Series State of its legs. If any of the legs of the Strategy Series is placed in a not trading State, SOLA automatically places the Strategy Series Instrument Series State to Suspended. The Strategy Series Instrument Series State will return to follow the State of its Instrument Group (so, returning to the value Continuous Trading ) when the same switch will have happened for all of its legs (so, when the Instrument Series State for of its legs returned to Continuous Trading ). For further information on strategies, please refer to the Strategies documentation on the LSEDM Document Library Matching algorithms available on LSEDM LSEDM s Order Book operates two different matching algorithms: Price-visibility-time priority, and Pro-rata matching. A summary of the matching algorithms applied to each product traded on LSEDM is provided in the below table. All executed trades on the LSEDM Order Book will contribute to price and quantity updates in the Market Data Feed (HSVF). Products Description Parameters All Price-visibility-time priority N/A STIRs Progressive pro-rata matching algorithm, with Best Price Setter Progressive pro-rata allocation apportions volume to matching resting orders according to their relative sizes adjusted by a time weighting factor which increases the allocation of volume to older orders in the Order Book. In particular, the current product configuration is set to: Three month Sterling futures: Best Price Setter: Enabled - Min = 50; Max = Allocation = 100% First pass allocation: - Collar = 1; Cap = 9999; Split = 100% 13 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 tosection of this document. 39

41 Products Description Parameters LTIRs Price-visibility-time priority N/A - Time Weight = 3 Residual Policy: - Re-sort = None - Method: FIFO Three month Euribor futures: Best Price Setter: Enabled - Min = 50; Max = Allocation = 100% First pass allocation: - Collar = 1; Cap = 9999; Split = 100% - Time Weight = 1 Residual Policy: - Re-sort = None - Method: FIFO Pro-rata matching algorithm The Pro-rata matching algorithm is run in three steps: (where applicable) a specified quantity of the incoming order is allocated to the Best Price Setter resting order, on the basis of the parameters described under Best Price Setter above; the remaining quantity of the incoming order is allocated to resting orders on a pro-rata basis - orders at best price levels are allocated first; in case total quantity at one price level is more than the available remaining quantity of the incoming order, a prorata allocation is applied among all the available resting orders at that price level - with the pro-rata allocation policy determined on the basis of the parameters described under First pass allocation above; any residual quantity of the incoming order (if any) is allocated on the basis of the Residual policy configured and its related parameters. a. Best Price Setter (BPS) The Best Price Setter status is assigned to an incoming order which determines new best price level (in bid or offer) of the Order Book. The quantity of an incoming order allocated to the Best Price Setter is determined on the basis of the following parameters: Min = represents the minimum quantity that can be allocated to a BPS order. In case this quantity cannot be satisfied, BPS status is not assigned to the order and all the residual quantity is sent to the First Pass Allocation; Max = represents an absolute maximum quantity (in units) that can be allocated to a BPS order; Allocation = represents the maximum quantity (in % of the incoming order quantity) that can be considered for allocation to a BPS order. b. First pass allocation In the First Pass allocation, the policy to allocate residual quantity can be FIFO or Pro-rata : under FIFO, resting orders are fully filled based on their time priority, until no resting quantity remains. In this case, the Residual policy step is not necessary; under the First Pass pro-rata allocation policy the quantity to be allocated is determined on the basis of the following parameters: - Collar = represents the minimum incoming quantity that must be available to allocate via the First pass. In case this quantity cannot be satisfied, all the residual quantity will follow FIFO allocation; - Cap = represents the maximum quantity (in units) that can be allocated during the First Pass; - Split = represents the maximum quantity (in % of the tradable quantity) that can be allocated during the First Pass; 40

42 - Time weight = is the parameter governing a time-based component in the allocation policy during the First pass. o o o when set to 0, no weight is attributed to the time-priority component; when given a numerical value (1.5), the higher the parameter, the greater the weighting for allocation given to resting orders that have a higher time-priority ( Progressive pro-rata ); If set to A this will implement the Age pro-rata allocation whereby allocation to each applicable resting order is determined by both the unallocated quantity of the incoming order and the age of the order (length of time present in the Order Book) in comparison with the oldest eligible order that is still present in the book at that price level. c. Residual policy In the Residual policy pass, the policy to allocate any residual quantity can be configured to be FIFO or Residual Pro-rata. under FIFO, resting orders are fully filled based on their time priority, until no resting quantity remains; under the Residual pro-rata, resting orders are filled sequentially, in proportion to their residual unexecuted quantity. Note that allocation of any residual quantity under the Residual pro-rata is determined on the basis of the re-sort parameter. At the end of First pass allocation, resting orders can be re-sorted before the allocation of any residual quantity. It is possible to: maintain the original time priority (no re-sort); re-sort by size (orders with biggest unexecuted quantity after the first pass allocation are ranked first), or; re-sort by allocation (orders with lower allocated quantity after the first pass allocation are ranked first). 5. Quotes Management 5.1. Bulk Quoting (product dependent) Members that have conformed to the LSEDM SAIL API are also able to send Bulk Quotes to the LSEDM Order Book 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 section8 on Risk Controls. 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 Market Makers and their obligations Member Firms pursuing a market making strategy, as defined in CDR (EU)2017/578/UE, are required to sign a dedicated market making agreement. Furthermore, depending on an asset class, Member Firms can apply to join Market Making Programmes or Market Making Schemes (as defined in the LSEDM Rule Book in the LSEDM Document Library). For further information with regards to available Market Making capacities, schemes and incentives please refer to the Market Making Obligations document in the LSEDM Document Library Participants that have signed a Market Making Agreement, or that have joined a Market Making Programme and/or Market Making Scheme are subject to pre-defined spread, quantity and time presence obligations linked to particular group(s) of Instrument Series and are offered specific pricing structures for their trading activity. Market Supervision monitors the fulfilment Market Makers obligations with the terms laid out in the Market Making Agreement. 41

43 Specific TraderIDs are assigned to all market makers allowing submission of orders and/or quotes on the instruments associated with their committed obligations. Order flow submitted under Member Firm s market making agreement must be channelled through these specific TraderIDs. The following market making capacities are available on LSEDM: Capacity MiFID II Market Maker Primary Market Maker (PMM) Obligations MiFID II Market Makers providing liquidity in Equity or Interest Rate derivatives may use either orders or quotes (via the Bulk Quote message in the SAIL API) to fulfil their obligations. For Equity derivatives, participants in Market Making Schemes are requested to comply with their market making obligations by sending quotes via the Bulk Quote message in the SAIL API. Dedicated TraderID naming convention ILP1 For Equity derivatives, participants in Market Making Programs are requested to comply with their market making obligations by sending quotes via the Bulk Quote message in the SAIL API. 0123/MM1 Designated Market Maker (DMM) For Interest Rate derivatives, participants in Market Making Programs are requested to comply with their market making obligations by sending either orders or quotes (via the Bulk Quote message in the SAIL API). 1 First 4 characters correspond to Member ID; 5 th character corresponds to Exchange ID; last character is numerical, incremental by Member ID LSEDM reserves the right to terminate the Market Maker Agreement if a 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 Indication of Interest to Trade (IT) The Indication of Interest to Trade (IT) functionality allows any Member to broadcast a message to the whole market in a particular instrument via the HSVF market data feed. Market Makers that are part of a Market Making Scheme or Market Making Programme, as part of their agreement with LSEDM, have an obligation to reply by entering a quote in to the Order Book for that specific instrument. An Indication of Interest to Trade includes: Instrument Class; Instrument ID Code; Quantity (not mandatory). Indications of Interest Trade are entered in SOLA with the SAIL Message REQUEST FOR QUOTE (RQ) message. If the message is valid, the client receives a STANDARD ACKNOWLEDGEMENT (KO) message. If the RQ message is not valid, SOLA sends an ERROR (ER/TE) message indicating the error code for the first error detected. 42

44 Application API and Connectivity LSEDM TRADING 6. Connectivity and Access Customer Managed Connectivity (CMC) Extranex Colocation: Exchange Hosting Third parties (NSPs/VANs) Internet VPN Trading Clearing Market Data SAIL API FIX API BCS API for equity based derivatives LCH Synapse for interest rate based derivatives HSVF API Solutions ISV* or Member In-House GUI ISV provided GUI* ISV GUI* Market Data Vendor* * See the LSE website for a full list Please refer to the Connectivity section in the LSEDM Document Library 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. A list of Accredited Connectivity Partners can be found at the following link: b. Extranex 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 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. 43

45 6.3. Third Party Connectivity: Vendor Access Networks (VANs) VANs provide an end-to-end solution comprising network connectivity and pre-conformed software 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 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: 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 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. Please refer to the documents in the BCS section in the LSEDM Document Library 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 Language 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. FIX and SAIL documents are available in the Technical Specifications section of the LSEDM Document Library 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. 44

46 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: Protocol Message types SAIL FIX Order Acknowledgement KE 35=8 Order Modification Acknowledgment KM 35=8 Order Cancellation Acknowledgment 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=8 For more information on drop copy functionality please refer to the LSEDM Document Library 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 sign a Service Agreement beforehand and should refer to the Connectivity Charges document in the LSEDM Document Library, 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. 45

47 7. Market Operations and Clearing 7.1. Transaction reporting and Market Identifier Code (MIC) Every unique instrument on LSEDM has an associated ISIN code. This ISIN is a unique identifier that can be used for transaction reporting purposes. Each instrument can also be identified by its unique series level code, described in the section 3.6 (symbology). When LSEDM trading platform generates a Standard instrument with parameters that coincide with the parameters of a previously created Tailor-Made (Flex) instrument (e.g. 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) instrument to Standard instrument. The new Standard instrument inherits the same ISIN as the original Tailor-Made (Flex) instrument. A single segment Market Identifier Code (MIC) is affixed to the post trade transparency data feed. For Norwegian products trading on the Linked Order Book of LSEDM and Oslo Børs, the MIC XOSL is being used. For all other products trading on LSEDM the Market Identifier Code (MIC) is XLOD, while the Exchange ID is: E for Equity derivatives; R for Interest Rate derivatives. For the purposes of MiFID II transaction reporting the relevant Segment MIC Code for all trades on LSEDM, including Norwegian Products, is XLOD. LSEDM uses the LEI for London Stock Exchange Plc: D1EI4B9WTWWD28. In order to assist Members with their MiFID II transaction reporting obligations execution notices for trades on LSEDM will contain: TVTIC Pre Trade Waiver Flag Non-MiFID members will be required to assist LSEDM with their transaction reporting obligations under MiFID II. Full details can be found in the LSEG Transaction Reporting Guide for Non-MiFID Firms Central Counterparty Protection All Future and Option Contracts traded or reported on LSEDM will have LCH acting as Central Counterparty. The LSEDM contracts operate under an open offer arrangement, details of which are described in the LSEDM rulebook Margining and Position Controls Equity derivatives For Equity derivatives, initial margin is calculated and collected by LCH using London SPAN. 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 positions 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 46

48 Interest Rate derivatives a. Initial Margin (IM) methodology The IM methodology is based on an historic value-at-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. 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 Instrument Three month Euribor futures Three month Sterling futures Schatz futures Bobl futures Bund futures Long Gilt futures c. Pricing methodology 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: Index Curves Sovereign Discount Curves Repo / General Collateral (GC) Curves 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: 47

49 Client account; House account; Market Maker account (for Member Firms registered as Market Makers); Matched Principal 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. The account type is also used to indicate trading capacity. Orders sent to execute a Bilaterally Negotiated Trade (internal cross order) will not be accepted by the trading system if the Account Type field on buy vs. sell side is: House vs. House, or House vs. Matched Principal, or Matched Principal vs. House, or Matched Principal vs. Matched Principal. 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. Furthermore, Gross Omnibus Segregated Accounts (GOSAs) are offered for Clearing arrangements of Indirect Clients 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 Synapse clearing system provides Clearing Members with a set of daily intraday and end-of-day reports and data extracts. Clearing Reports are available to Clearing Members in PDF and CSV format within Synapse 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 Exercise Any Trading Day from the Trade Day until the Trading Day before Expiration Day Exercise Window / manual Exercises Open Close 07:30 18:00 48

50 Option style Exercise Exercise Window / manual Exercises European style and Expiration Day only 18:10 18:40 American style All times are London times LSEDM applies automatic exercise for all in-the-money 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. 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-Schatz, 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: 49

51 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 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. 50

52 8. Risk Controls The LSEDM Trading System embeds two sets of Risk Controls in order to support LSEDM in maintaining the regular and orderly functioning of the market: Exchange level controls; User defined controls Exchange level controls Maximum order quantity checks (for order and quotes) The Trading System conducts a check on the value of the quantity parameter of an order. If the traded quantity of an order exceeds the maximum quantity parameter specified for the contract the order will be rejected. Maximum Quantity parameters can be found in Appendix A Controls Maximum notional value checks (for orders and quotes) The Trading System conducts a check on the notional value of an order. The order notional value is the amount of the derivatives contract considering the quantity, the size and the price as follows: a. Equity derivatives - Index futures (incl. index dividend futures) = Number of contracts * Multiplier * Future price - Index options = Number of contracts * Multiplier * Strike price b. Interest Rate derivatives - Futures = Number of contracts * contract notional (as per Contract Specifications) Maximum notional values can be found in Appendix A Controls Automatic 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 A Controls. For Stop Loss and If Touched orders, the incoming order price cannot be outside the price control thresholds detailed in Appendix A Controls. Additionally if, when triggered, the price on such an order violates the control parameters, the incoming order is 51

53 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 Price and Quantity Controls on Block Trades a. Block trades trade reported using SOLA available functionalities Block trades submitted to LSEDM are not subject to the price and quantity controls for trades executed on the Order Book and are not captured by automatic controls described in the previous chapter. Instead, they are subject to the following Block trade-specific system controls or controls established by Market Supervision: - Minimum and maximum quantity controls; - Price-quantity controls to allow trades to be reported either within the Order Book bid and ask or within the allowable % from the Order Book bid and ask. In case no BBO spread is available on the Instrument Series Order Book, the price of the block trade must be: i) within the allowable % from the last trade price, where available, otherwise ii) within the allowable % from the last reference price Block Trades that do not meet either of the conditions outlined above, will not be accepted by the trading system or cancelled by Market Supervision. Product specific settings are detailed in the Appendix A Controls. Block trades on Tailor-made (Flex) series will be parked and subject to a fair value validation check by Market Supervision. b. Block Trades trade reported through a manual process (where applicable) Block trades sent to Market Supervision for Trade Reporting using pre-defined templates are subject to price-quantity controls by Market Supervision and must comply with the same conditions outlined for trades that are submitted electronically Fair value validation Trade adjustment and cancellations are subject to fair value review by LSEDM Market Supervision. Futures contracts value ranges are available in Appendix B - Futures Contracts Fair Value Ranges. In assessing the Fait Value the Exchange will also consider the following factors: 1) The quantity executed; 2) The quantity and prices of trades, as well as bids and offers, in the relevant listed product(s) (or for Tailor-made contracts, the related listed product(s) where relevant); 3) The quantity and prices of trades; 4) Any other circumstance the Exchange deems relevant to the deal, including the particular circumstances of the participants or general market conditions 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 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. 52

54 Too Deep Limits can be found in Appendix A Controls User defined controls Automatic cancellation of orders and quotes in case of disconnection Orders with Duration type While Connected will be automatically cancelled in case of disconnection from the SOLA System Global Cancellation (for orders / quotes / both) Global Cancellation (GC) of orders, quotes or both allows Member Firms to remove i) all resting orders in the Order Book, or ii) all resting quotes placed with the Bulk Quote (Qi) message related to a specific TraderID and on all Instrument Series in the same Instrument Group 14, or iii) both Kill Switch functionality The Kill Switch (KS) functionality enables Member Firms to i) prevent entering or modifying any order or quote in the Trading System, and ii) remove all resting orders (including orders to execute Bilaterally Negotiated Trades) and quotes at the same time. The Risk Master Switch message is available on RM user only and, subject to RM user configuration, KS functionality may allow to disable a TraderID or a predefined Group of TraderIDs. Following KS triggering, a Marker Makers will keep receiving alarms related to its quoting obligations, despite the fact that they cannot quote since disconnected. Following KS triggering, in order to re-activate a TraderID or a predefined Group of TraderIDs, a Member Firm is required to contact Derivatives Market Operations Bulk Quoting Protection (BQP) Bulk quoting protection is a functionality provided by LSEDM that will result in an automatic cancellation of all quotes in a particular instrument class under certain conditions. The feature protects Bulk Quote users against any excessive trades due to the following: Technical problems at participant s end preventing normal market updates Quoting errors at participant s end due to erroneous underlying price information Unintentionally being swept by another participant a) Bulk Quoting Protection Types BQP apply to each trader ID for an underlying instrument group. Users may opt for one of two types of bulk quoting protection: Standard protection: If protection is triggered on an instrument class, quoting will be restarted and counters (detailed below) reset the next time a bulk quote message is sent to any instrument in the class. Advanced protection: If protection is triggered on an instrument class, any subsequent quote update is rejected and quoting can only be resumed after a new Protection subscription (RP) message is sent. Once protection is triggered, the London Stock Exchange Derivatives Market will automatically cancel all quotes posted by the trader on all instruments in the class and send a Notice of cancellation of all quotes (NP) message. b) Protection counters BQP is active on all quotes sent using the Bulk Quote message functionality. 14 In order to identify the Quotes to be cancelled via the GC, the TraderID and the instrument Group ID must be specified. 53

55 LSEDM provides five protection counters which can be set by Firms using bulk quotes in a specific instrument class. 15 Any number of counters can be activated simultaneously. Traders must define a Time Interval. The protection counters are reset in the event that the time elapsed (in number of seconds) between any two trades is longer than the user defined Time Interval. Protection counters are listed and described in the table above Counter type Counter change condition (applies to all trades in any instrument of the class) Trigger for bulk quoting protection Trade count (of Min Lot Size) Volume count Value count Delta volume count Delta value count Increases by 1 with each execution of a trade of at least N lots (where N is a user defined number). Max number of trades = Count (Trade where volume Minimum Trade Volume) Increases by the trade volume of every execution Increases by the trade value of every execution Max Value = (Volume x Price x Contract Size x Tick Value) Increases by trade volume of every bought call option, sold put option and bought future; and Decreases by trade volume of every sold call option, bought put option and sold future Increases by trade value of every bought call option, sold put option and bought future; and Decreases by trade volume of every sold call option, bought put option and sold future LSEDM default threshold OR User defined number of trades of at least N lots in size LSEDM default threshold OR User defined volume LSEDM default threshold OR User defined value LSEDM default threshold OR User defined net volume LSEDM default threshold OR User defined net value c) Default protection and ranges LSEDM provides default thresholds for the protection counters within the Trading System (see Appendix E - Bulk quoting protection: Default thresholds and user configurable ranges). LSEDM sets the default to ensure adequate protection for bulk quote users. Bulk quote users may define their own customised thresholds. When defining their thresholds, users must adhere to the minimum and maximum configuration ranges in the tables in Appendix E - Bulk quoting protection: Default thresholds and user configurable ranges. If a value outside the relevant minimum or maximum is selected, LSEDM will reject the message and users will be unable to set up their customised protection thresholds. The protection must be activated before the start of each trading day by sending an RP message to select the type of protection (Standard or Advanced). For each trader ID, bulk quote users need to send a bulk quote message (BD) to begin their quoting activity with the user defined thresholds (including the Time Interval, Maximum Volume and Value limits, and Maximum Delta Volume and Value limits). If the values of the thresholds are not user defined, then the LSEDM default thresholds are selected, as in Appendix E - Bulk quoting protection: Default thresholds and user configurable ranges. For further information on the Bulk Quoting Protection functionality, please refer to the Bulk Quoting Protection Description document on the LSEDM Document Library 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 Order Book (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: 15 Market Maker Protection can be disabled if zero thresholds are set for an instrument class. 54

56 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. o o Orders submitted from TraderIDs within the same SEP Group will not be allowed to interact with each other; Orders submitted from TraderIDs in different SEP Group will be allowed to interact with each other. 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 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 before the potential execution of every individual trade triggered by the incoming order; for products based on Progressive Pro-rata matching algo, SEP is evaluated at each relevant price level, before starting the allocation process described in Appendix B. The following SEP Rules will be available for each TraderID: Cancel Incoming Order (CIO): leaves the resting order (all resting orders at the relevant price level - and belonging to the same SEP group - in case of products based on Pro-Rata matching algo) while expiring the incoming order; Cancel Resting Order (CRO - configurable only for equity derivatives): expires the resting order while allowing the incoming order to aggress (and rest in the book if it is not matched); Cancel Both Orders (CBO - configurable only for equity derivatives): expires both the resting order and the aggressing order; Reduce and Cancel (RC - configurable only for equity derivatives): cancels both orders if they are of the same size. For those not of the same size, the smallest order will be cancelled and the larger order will be reduced by the size of the smaller order before executing/resting. Both orders will also be cancelled if the resting order is marked with any SEP (other than RC) and the incoming order is smaller than the resting order. 55