1. What is the block trade facility?
Similar to the existing exchange-for-physical trading mechanism, ASX’s block trade Facility (BTF) is an entirely off-market – i.e. non-ASX Trade24 – trading facility, enabling ASX 24 participants to bilaterally arrange large volume transactions away from the ASX Trade24 market that might have otherwise negatively impacted normal market quality.
2. Why introduce the BTF?
As capital markets continue to evolve and grow, professional investors are increasingly looking for more efficient ways to transact nominally large orders. It has become clear that that many large investors (particularly OTC and overseas) overlook exchange markets that are not sufficiently deep or liquid enough to enable singularly large trades to be transacted with certainty.
As a result, this business is often transacted elsewhere. In situations where a market is not sufficiently liquid to absorb large orders, non-centrally traded markets (“upstairs” markets) have grown in relevance. In general, upstairs markets have seen increased activity in recent years, principally because they minimise the cost and uncertainty associated with transacting large orders relative to similar transactions in central markets. In addition, upstairs markets afford users greater flexibility in the arrangement and management of orders and in the application of proprietary expertise. In response to this, the BTF was introduced to attract volume to ASX products by offering customers certainty of price and immediacy of execution in the transaction of large orders. The BTF facilitates greater market efficiency through increased liquidity, improved execution quality and lower market transaction costs for large orders. Block trading is not intended to diminish the role of the existing automated trading systems (ASX Trade24), which will continue to be the primary method for trading ASX’s products.
3. Has the BTF been employed elsewhere?
Yes. The BTF is consistent with successful precedents set at other exchanges globally such as LIFFE, CME, CBOT and SGX and has been found to substantially enhance market efficiency through increased liquidity, improved execution quality and lower market transaction costs.
4. Who can use the BTF?
The BTF is available for use only by ASX 24 participants on behalf of their clients.
5. When can the BTF be used?
Block trades are to be executed within normal contract trading hours (including the night session), plus 10 minutes after the close. For example, normal ASX Trade24 trading hours for ASX SPI 200 index contracts are currently 9:50am to 4:30pm and 5:10pm to 8:00am. Block trades could therefore be executed 9:50am to 4:40pm and 5:10pm to 8:10am. The additional 10 minutes is a practical consideration to enable orders dependent upon a closing futures price to be transacted.
For night session only block trades, trading is restricted to during the night trading session hours, that is, 5.10pm to 7am (7.30am during US non-Daylight Saving Time).
The BTF may only be used to arrange and execute trades equal to and above pre-defined volume thresholds in prescribed ASX 24 contracts.
6. When is the BTF not available?
For ASX 30 day interbank cash rate futures and ASX 90 day bank bill futures (night session only) block trade is permitted in all contract months, except in the spot month with five business days or less to expiry. For ASX 3 and 10 year treasury bond futures (night session only), and ASX SPI 200 index futures contracts, block trades will only be available for the 'spot' contract and will not be permitted in a contract with five business days or less to expiry/delivery. As a result, upon five days to expiry, the 'spot' contract will become the next expiry month, thereby facilitating continuous use of the facility. For all other permitted futures and option contracts block trades are available on all contract months and at any time leading up to expiry.
7. How are the minimum volume thresholds for the BTF determined?
The purpose of the minimum threshold for each prescribed contract is twofold:
To protect the existing ASX Trade24 market by encouraging all but genuine ‘large’ orders to be transacted in the central market; and
To define in advance, which orders are considered of sufficient size to potentially qualify as a block trade. Minimum thresholds are determined by ASX 24 investigation plus consultation with participants and other market users as applicable to each contract. Minimum volume thresholds will be set on an individual contract basis and monitored with a view to maintaining a desirable balance between block trade business and that executed through ASX Trade24 for any given contract.
8. Can orders less than the minimum threshold for a contract be aggregated to form a block trade?
No. Participants may not aggregate separate orders to meet minimum threshold requirements. However, participants may aggregate any orders individually greater than or equal to the minimum threshold for that contract. For example, if the minimum threshold is 300 lots, a buy order for 1,200 lots may be satisfied on the sell side by four 300 lot orders.
9. Do the counterparties to the block trade have freedom to determine the price of the transaction?
Yes. There are no explicit price limits attached to block trades. Block trades may legitimately occur at prices different to the ASX Trade24 market price for the relevant contract at the time of trade agreement. However, ASX reserves the right to not approve a proposed block trade if the proposed price of the block trade varies significantly, as assessed by the Exchange, from the price at which trades are being transacted on ASX Trade24 at the time that the record details are lodged.
10. How is the block trade executed?
A block trade is executed as a participant to participant transaction (or a cross transaction for a single participant on behalf of a client) submitted to ASX via the ASX Trade24 message facility immediately after the agreement of all details of the trade. With the exception of the night session block trades, participants to the trade then have a further 5 minutes to submit a completed official block trade facility trade registration form to ASX to confirm the proposed transaction. Participants should not submit the proposed block trade to the Exchange for validation until all details of the trade have been agreed. As an example, market-on-close orders cannot be submitted until the close of the market because of the dependence on the closing price.
For night session block trades, participants to the trade are required to notify the Exchange within 5 minutes of the trade being executed via the ASX Trade24 message facility and phone of the transaction. Between 8.30am and 9.30am the following morning participants are required to enter the night session block trade details into ASX TradeAccept.
11. What information does ASX require?
Participant mnemonic (buyer and seller), contract, contract month(s)/year(s), price (of individual legs), number of lots (each leg), time of trade agreement and name of individual authorised by the participant(s) to submit block trades.
12. What is the nature of the trade approval process?
Upon receipt of the trade registration form, ASX staff will validate the following:
The difference between the time of trade agreement (from ASX Trade24 message) and the time of receipt by ASX (from trade registration form)
Whether the trade meets the minimum size threshold requirements for the prescribed contract(s)
The trading rights of the participant(s)
The price of the contract(s)
13. After the trade is agreed between participants, how long does ASX require to process and publish the transaction?
Subject to validation, ASX will disseminate block trade information from 9:30am (for ASX SPI 200 index futures block trades) on the following business day, including block trades executed during the night session. Validated block trades will be published to the market via the ASX Trade24 message facility.
For the night session only block trades the Exchange will publish block trade information by no later than 12pm on the day of registration.
14. How/what block trade information is published to the market?
Following transaction validation, block trade information is disseminated to the market via the ASX Trade24 message facility and data vendors. Information disseminated by ASX will be in the form of contract, expiry month(s)/year(s), price, volume and time of trade.
15. Are participants required to adhere to standard disclosure/pre-arrangement/withholding business rules when executing a block trade?
No. All trades executed pursuant to the Operating Rules for block trades will be deemed to have been made in accordance with the standard contractual and clearing structures of the market. However, participants should note that the prohibitions under ASIC/ASX 24 Market Integrity Rules 3.1.7 (Disclosure) and 3.1.8 (Withholding Orders), will not apply to transactions executed pursuant to the Operating Rules for block trades.
16. Can a block trade affect ASX Trade24 prices/volumes/settlements?
No. As an off-market trading facility, the BTF will not interact with the ASX Trade24 market. Block trades will therefore not affect any open/high/low/close/volume information in the ASX Trade24 market nor will block trade prices be used for settlement purposes. However, block trade volumes will be included in all ASX 24 market data reporting.
17. What ASX 24 fees are charged for block trades?
Validated block trades will attract the standard trading and clearing fees relevant to the executing Participant. In addition, block trades will attract an additional, one-off charge.