Crossings are a type of order where the buying and selling broker are the same.
Crossings are strictly regulated by the ASX Operating Rules. The regulations are formulated to protect retail investors and ensure the integrity of the marketplace. Only brokers may cross.
The broker may be acting on behalf of buying and selling clients, or acting on behalf of a client on one side of the trade and as principal (i.e., trading for themselves) on the other. The Broker cannot act as principal on both sides of the trade.
There are two main categories of crossings, special crossings and on-market crossings.
Special Crossings may take place off-market at any time, including during Normal Trading.
There are a number of types of Special Crossings. Depending upon the type, the minimum consideration (total sale price) ranges between $1,000,000 and $5,000,000.
Special Crossings include large trades and large portfolios, and must be reported to the market via ASX Trade.
Example special crossing
Best Stockbrokers Ltd has two clients. One wishes to buy 100,000 PQR at $10. The other client wishes to sell 100,000 PQR at $10.
Best Stockbrokers Ltd proceeds as follows:
- Checks that a Special Crossing is allowed. PQR is an equity (share). Block Special Crossings are permitted in equities where the consideration is at least $1,000,000. Both the orders meet this requirement.
- Does not check the current market for PQR. Special Crossings take place with no reference to the current market and may be at any agreed price, regardless of the current market price. For this example, the current market price for PQR is $9.70.
- Reports the trade into ASX Trade, indicating the security (PQR), the quantity (100,000), the price ($10), the buying and selling broker number (eg broker 789), and a condition code indicating that this is a Block Special Crossing.
A broker may wish to perform an on-market crossing because they have buying and selling clients who wish to trade at the same price, or they have a buying/selling client who wishes to trade at the same price as the broker wishes to trade.
In broad terms, on-market crossings take place as follows:
- The broker places an order at the crossing price, i.e. the price they wish to cross at, then
- checks that a crossing market exists. If not, they must create one. A crossing market is one where the priority buy price is one price step or less from the priority sell price.
- The broker then places a crossing order. The crossing order immediately results in a trade where the broker sells to themselves.
Important notes about on-market crossings
When a Broker enters a crossing order, the crossing takes precedence over other orders at the same price. That is, the time component of price-time priority does not apply.
Orders at better prices must be filled before a crossing can take place. That is, the price component of price-time priority continues to apply.
Special crossings versus on-market crossings
The previous examples demonstrated the differences between on-market crossings and special crossings:
- On-market crossings must be visible to the market before they occur, e.g. the crossing broker must enter an order at the crossing price and must ensure that a crossing market exists.
- Special crossings are only visible after they occur, the broker does not enter orders or create a crossing market.
- Better-priced orders must be filled before an on-market crossing can take place. This is not the case for special crossings.
- On-market crossings may take place for any consideration. This is not the case for special crossings.