TradElect Conceptual Training

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TradElect Conceptual Training
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Contents

• Introduction
• Objectives
• Focus
• Functional Segments and Sectors
• Participant Structure
• The Order Book
• Characteristics of the Order Book
• Order Types
• Validity
• Price time priority
• The Trading Day
• Trades

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Objectives
The objectives are

• To ensure an understanding of the trading model
• To describe the overall structure of the market
  segments
• To understand the trading rules

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Focus
This course will focus on

• Order Types
• Anonymity
• Market depth
• Order suspension and modification
• Auctions
• Price monitoring
• Closing Prices
• Trade types
• Publication delays

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Functional Segments

• The trading platform has been divided into five
  functional segments to facilitate trade and
  efficient running of the market.
• Functional segments and sectors facilitate the
  setting of common trade parameters for
  instruments with similar characteristics.
• The segments are determined by grouping stocks
  with similar liquidity classifications as they
  have similar characteristics.

JSE Top Companies ZA01
JSE Medium Liquid ZA02
JSE Less Liquid ZA03
NSX ZA11
Specialist Products ZA04

• TOP40 equities and related instruments.
• Functional sectors obey the same trading
  schedules and similar trade period rules.

• Liquid and Medium liquid equities and related
  instruments which are not part of the TOP40.
• Functional sectors obey the same trading
  schedules and similar trade period rules.

• Less liquid equities
• Exchange Traded Funds
• Alternative Exchange (ALTX)
• Other products
• Functional sectors obey the same trading
  schedules and trade period rules.
• Intra-day liquidity auctions are used to
  facilitate trade.

• NSX instruments.
• Functional sectors may obey different trading
  schedules and trade period rules.
• Intra-day liquidity auctions will be used to
  facilitate trade.

• Warrant Instruments
• Investment products
• Functional sectors obey the same trading
  schedules and trade period rules.

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Functional Sectors
JSE Market
NSX
Market
Functional Segment
Top Companies (ZA01)
Medium Liquid (ZA02)
Specialist Products (ZA04)
Less Liquid (ZA03)
NSX (ZA11)
TOP 40
Specialist Products
High Liquid
Less Liquid
Dual Listed NSX
Dual Listed UK
High-priced
High-priced
Warrants
High-priced
Mid-priced
Mid-priced
IPs
Mid-priced
High-priced
Low-priced
Low-priced
Low-priced
Mid-priced
Functional Sector Definition
Low-priced
Medium Liquid
Local NSX
Top Companies
High-priced
High-priced
High-priced
Mid-priced
Mid-priced
Mid-priced
Low-priced
Low-priced
VC DC Boards
Low-priced
Main Board
Note - Intra-day Auctions included.
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Participant Structure
A new level has been introduced to the
participant structure viz. Trader Group. This
structure can be used to support the
identification of desks and/or individuals
within a trading entity, such as cash desk,
arbitrage, international brokerage, direct
market access and automated trading systems.
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Characteristics of the Order Book

• Buy and sell orders are placed into a central
  order book
• Full depth of the order book is visible
• During continuous trading, orders are matched
  continuously on a price-time priority basis
• Matching (Uncrossing) of the order book occurs at
  the end of auction periods
• Pre and post trade anonymity
• Standard settlement terms only (T5) i.e. no
  same day settlement and other special terms

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Order Entry Parameters
When entering orders, there are certain
parameters within which your order is entered.
The most important ones are highlighted here

• Dealing Capacity
• Order Size
• Order Price
• Trader Group
• Trader ID
• Buy Or Sell Indicator
• Client Account Number
• Validity
• Instrument Alpha code
• Foreign currency indicator will default to no

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Orders
There are essentially two order types that may
appear on the order book, namely limit orders
and market orders
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Time Based Validity

• Immediately entered into the order book upon
  entry by a Participant and is removed once the
  expiry date/time specified in the message has
  been reached (unless fully executed or deleted
  prior to the specified time)
• The two types of time based validity are Good
  Till Time (GTT) and Good Till Cancelled (GTC).
  These are shown below.
• Good Till Time (GTT) Allows an expiry date and
  time to be specified on the message up to a
  configurable maximum
• Good Till Cancelled (GTC) No expiry date and time
  is specified but will default to the configurable
  maximum for the instrument
• Note An expiry date and time is only specified
  with GTT validity and both fields must always be
  populated.
• GTC orders will have their expiry date set to the
  maximum number of calendar days allowed in the
  segment after the day of entry. If a GTC order
  has either the date or time populated, it will be
  rejected by the system.
• GTT orders will expire using the date and time
  specified in the date and time validity fields.

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Period Based Validity

• This validity type introduces the concept of
  Parked Orders, allowing both the entry and
  removal of the order to be based upon a specific
  period based transition.
• GFD - Good for Day orders are immediately posted
  to the book deleted at start of runoff (RNOF)
  for instruments in ZA01, ZA02, ZA03 ZA11 or end
  of continuous trading (CTDG) for instruments in
  ZA04
• ATO - At the Open orders are Parked for injection
  at the start of the next opening auction period
  and deleted at end of opening auction for
  instruments in ZA01, ZA02, ZA03, ZA04 ZA11
• ATC - At the Close orders are Parked for
  injection at the start of the next closing
  auction deleted at end of closing auction for
  instruments in ZA01, ZA02, ZA03 ZA11 or end of
  continuous trading for instruments in ZA04
• GFA - Good for Auction Parked for injection for
  the next available auction (Open, close,
  Intra-day or Volatility) deleted at end of
  auction for instruments in ZA01, ZA02, ZA03
  ZA11 or end of continuous trading for instruments
  in ZA04

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Period Based Validitycont

• GFX - Good for Intra-Day Auction Parked for
  injection at the next scheduled intra-day auction
  (IDAX) Deleted at end of auction for instrument
  in ZA03 ZA11
• Orders with period based validity can be entered
  into the market during the period it is based
  upon and will be visible to the order book e.g.
  GFA can be entered during the Auction

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Parked Orders

• An order submitted by a Participant will be held
  in the system until the applicable period is
  reached, at which point it is passed onto the
  order book
• Whilst the order is held by the system it is not
  publicly visible and does not participate in
  continuous trading/auctions
• It may still be modified and deleted
• Whilst parked, the order will maintain time
  priority in line with all other orders that have
  been parked for that particular instrument.
  Also, when modified, it follows the same rules as
  it would on the order book to determine whether
  price/time priority is maintained
• The ability to park orders prior to the period
  they are intended for, ensures that they have a
  higher priority when going into the period
• This is because they are entered prior to any new
  orders being able to be submitted for that period

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Injected Orders

• As the period becomes effective the order will be
  injected into the order book as if the
  Participant had at that point submitted the order
  themselves
• The order will then either execute against any
  valid orders or remain on the book
• The transitioning of the period can also control
  the removal of the order, if it has not already
  been fully executed
• Validity types such as At the Open (ATO) will
  be entered at the start of the Auction Call
  period and if not executed, removed before
  transitioning into continuous trading.
• Any live orders already active on the order
  book will always have higher priority than the
  parked orders being injected

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Execution Based validity

• Fill or Kill (FOK) validity ensures orders are
  matched immediately and fully upon order entry.
  If full execution is not possible immediately,
  the entire order is rejected from the trading
  platform.
• Execute and Eliminate (ENE) validity ensures
  orders are matched immediately and as fully as
  possible upon order entry with any remaining,
  unexecuted volume being deleted from the trading
  platform.

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Order Execution Constraints
The following descriptions are used to
distinguish between the different order type /
execution constraint combinations
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Price/time priority
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Summary part 1

• Instruments are logically grouped into functional
  market segments and sectors according to their
  characteristics
• Full depth of the order book is available
• Pre and post trade anonymity
• Two main order types
• Market Orders
• Limit Orders
• They can be subject to
• Execution Based Validity (execute and eliminate /
  fill or kill)
• Time Based Validity (GTT GTC)
• Period Based Validity (GFD, ATO, ATC, GFA GFX)
• No Market Orders without Execution based validity
  or period based validity accepted during
  Continuous Trading

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The Trading Day(ZA01, ZA02, ZA03, ZA11)
A normal trading day consists of several key
phases
09h00-16h50
08h35-09h00
16h50-17h00
17h00-18h00
08h30
Opening Auction
Closing Auction
Continuous Trading
Post-trade run-off
VWAP
Open
Intra-day Liquidity Auction
Volatility Auction
12h00-12h15
The continuous trading period for functional
segment ZA03 and local NSX instruments in ZA11
will include one scheduled intra-day liquidity
focusing auction from 12h00 to 12h15.
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The Trading Day
The Trading Day(ZA04)
A normal trading day consists of several key
phases
18h00
09h10-16h49
08h35-09h10
16h49-18h00
08h30
Opening Auction
End of Continuous Trading
Continuous Trading
Close
Open
12h00-12h15
Closing price disseminated
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Opening Auction Period
The trading day will begin with an Opening
Auction.
An indicative uncrossing price and volume will
be published during the auction.
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Random Periods
Random periods make the start of the next period
unpredictable
08h35
09h00
No Random Period
AUCTION CALL PERIOD
MATCH
Random Period Applied
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Call Extensions
Unusual events in auctions are brought to the
attention of the market through the
implementation of auction call extensions
08h35
e.g. 09h0027
e.g. 09h0252
Would there be unexecuted market orders (MOs)?
MARKET ORDER EXTENSION
AUCTION CALL PERIOD
MATCH
PRICE MONITORING EXTENSION
Check order book before match
Would there be excessive price movement?
e.g. 09h0543
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Call Extensions
An Opening Auction can have a maximum of one
market order and one price monitoring extension.
5 min if PME 2 min if MOE
5 min if PME 2 min if MOE
0-30 sec
0-30 sec
0-30 sec
Opening Auction 25 min
Call
Call
Market Order Extension
Call
Price Monitoring Extension
Call
Price Monitoring Extension
Market Order Extension
Call
Market Order Extension
Price Monitoring Extension
Random Element
Maximum Extension of 7 minutes plus two random
periods of up to 30 seconds each
Auction Match
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Auction Call Extensions
Volatility Auctions and Intraday Liquidity
Auctions are used for Price Monitoring Controls
Opening Auction
Closing Auction
Continuous Trading
Intra-day Liquidity Auction
Volatility Auction
Open
Market Order Extension
One
One
One
One
Price Monitoring Extension
No extension
No extension
One
Two
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Price Discovery

• Price discovery during an auction is based on the
  following principles

Maximum Execution
Minimum Surplus
Market Pressure
Reference Price
The auction price is calculated based on the
orders on the book at the time of uncrossing
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Price Discovery
Up to four principles can be applied to determine
the uncrossing price and volume
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Auctions Published Information
Auction trades in JSE TradElect are identified
by a trade type, UT (auction trade)
AUCTION MATCH
Market Single trade price and volume
Trading Participants Individual trade details
UT
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Summary part 2

• The Trading day starts with an Opening Auction
  during which order execution is disabled.
• An indicative uncrossing price and volume will be
  published throughout the auction.
• Random periods of up to 30 seconds will minimise
  market manipulation.
• Two call extensions
• Market Order Extension
• Price Monitoring Extension
• Price Discovery (Uncrossing Algorithm)
• Maximum Execution
• Minimum Surplus
• Market Pressure
• Reference Price

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Continuous Trading
After the price determination at the end of the
Opening Auction to day goes into Continuous
Trading

• Market Orders without Execution based validity or
  Period based validity will be rejected during
  Continuous trading
• Orders match on price-time priority
• Client Reference field may be modified without
  the loss of price-time priority
• The continuous trading period for functional
  segment ZA03 and local NSX instruments in ZA11
  will include one scheduled intra-day liquidity
  focusing auction each from 12h00 to 12h15

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Order Size
The maximum order size is governed by a multiple
of the average agency trade volume per instrument
except for ZA03 ZA04 which is 0.5 of the
Shares in Issue. Maximum order size is set at a
segment level


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Volatility Auctions
Volatility Auctions are used to maintain orderly
price formation
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Volatility Auctions
The Volatility Bands are defined around the Last
Traded Price
Interruptions to continuous trading
Price
Last Trade
e.g. 5
Volatility Band
Dynamic range (set by last AT)
Trade will not execute
e.g. - 5
Time
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Volatility Bands
Volatility bands are pre-set at functional market
segment level.
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Closing VWAP
Closing VWAP is calculated during the last ten
minutes of continuous trading.

• VWAP Volume Weighted Average Price
• Where no closing auction price can be determined
  in the auction, the VWAP will be used as the
  closing price
• The Closing VWAP is calculated as
• Where
• Pn price of trade n
• Vn volume of trade n and
• VT V1 V2 V3 Vn.

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Closing Auction
The period of Continuous Trading is always
followed by a Closing Auction.
Closing price disseminated

• The uncrossing price calculated during the
  Closing Auction will form the closing price of
  the day
• The Closing Auction lasts only ten minutes and
  two price monitoring extensions and one market
  order extension are possible
• If a closing price cannot be determined during
  an auction then the official closing price is the
  VWAP of last 10 minutes of trading (the Closing
  VWAP)
• If there is no Closing VWAP, then the last AT is
  taken as the official closing price

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Closing Price(ZA01, ZA02, ZA03 ZA11)
The closing price may be based on Closing Auction
Price, Closing VWAP or Last Automatically
Executed Trade price.
Closing Auction
Call phase
Extensions

• Closing price Auction price
• Orders executed at closing price

Can Closing Auction Price be determined?
YES
NO

• Closing price 10 min VWAP
• No order execution

Can Closing VWAP be determined?
YES

• Closing price Last Automatically Executed Trade
  Price

NO
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Closing Price Warrants Investment Products
(ZA04)

• The closing price for Warrants (WR) and
  Investment Products (IP) within functional
  segment ZA04 will be determined based on the best
  bid or offer (BBO) methodology.

End of Continuous Trading

• Closing price Best Bid price Best Offer price
  divided by two

YES
Is there a Bid and Offer on the book?
If there is only a Best Offer on the book?
YES

• Closing price Best Offer price

YES
If there is only a Best Bid on the book?

• Closing price Best Bid price

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Closing Pricescont Warrants Investment
Products (ZA04)
End of Continuous Trading
No Bids and Offers on the book?

• Closing price Zero

YES

• Please note when an instrument in any of the
  Segments is suspended the a closing price will be
  disseminated at the time of suspension.
  Thereafter no closing price will be disseminated
  for the duration of the suspension.

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Post Trade Run-off
At the end of the trading day there is a Post
Trade Run-off .

• Trade Reporting
• Order Deletion
• Modification of client reference field on Open
  Orders or Trades

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Summary Part 3

• No Market Orders without Execution Based validity
  or Period Based validity may be entered during
  Continuous Trading.
• Intra-day Auctions to increase liquidity in ZA03
  and local ZA11 securities.
• Volatility controls enhances market integrity.
• Volatility bands are set at segment level.
• There is a Post Run-off Phase for Trade
  Reporting, Order Deletion and Modification of the
  Client Reference Field.

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Trade Types
System generated For NSX market only
 
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Trade Publication
Exercise of options, exercise of warrants,
exercise of traded options and option delta
trades are the only trades which are not
published.

• Reported transactions
•  If conducted during trading hours must
  immediately be reported by the member to the JSE
  equities trading system. Where two members are
  involved, in the transaction, the selling member
  must report the transaction 
• If conducted after trading hours, must be
  reported to the JSE equities trading system on
  the next business day within the first 15 minutes
  of the day (i.e. by 08h45) and 
• Are immediately published unless it meets the
  criteria for publication delay (only on OP)

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Trade Publication Delays
Unless trades meet the criteria for a publication
delay they will have to be published immediately

• Trade publication delays are governed by two
  things
• trade type
• trade size (based on a multiple of EMS, currently
  6)
• OP is the only trade type which may be delayed
• EMS set by JSE
• EMS is a figure calculated for each instrument
  based on a of average daily agency trade volume
• Used to determine maximum order size

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Trade Publication Delays

• An OP Trade is systemically delayed for one
  business day if it is greater than 6 times the
  EMS
• It is up to the participant to pre-release trade
  information earlier according to the rules as a
  position is unwound.
• Must be released to the market when 80 of risk
  is unwound

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Contra Trades
The criteria for Contra Trades are set out in the
rules

• Criteria
• Request received by Director Surveillance within
  20 minutes from the time of the erroneous trade
  and
• Trade price is 5 or more away from the reference
  price at the time that the order was placed and
• The difference between the aggregate value of the
  trades that qualify in terms of rule 6.50.2.2 and
  the value that would have resulted had such
  trades been executed at the reference is R50 00
  or more or
• the quantity of shares traded exceeds 5 of the
  equity security in issue

Because of anonymity, Surveillance will contact
the counter-party.
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Summary Part 4

• Late trades have to be reported by 08h45 on the
  following business day.
• Only OP trades are eligible for delay.
• It is the participants responsibility to release
  information to the market when 80 of the
  position has been unwound.
• A Contra Trade (CT) is used to correct an
  erroneous AT or UT.

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Questions
E-mail tradingservices_at_jse.co.za