LSE proposes new intraday auction period

The London Stock Exchange Group is planning to lure large block orders from off-exchange venues by holding a short intraday auction period for its most liquid stocks.

The LSE is to hold a consultation with members in coming weeks over introducing a daily three-minute auction at 2pm, it said in a notice to members on Wednesday. It would cover FTSE 100 and FTSE 250 stocks, as well as the most liquid stocks on the junior Aim market and the International Order Book.

The move is intended to try to lure some of the largest trades back to the exchange as big institutional investors increasingly turn to controversial off-exchange venues such as so-called “dark pools”.

The venues, in which prices are only displayed after a trade has been completed, have become increasingly popular with large investors, who argue they are necessary for them to trade large blocks of shares without moving the market. Without them, they say the cost of trading falls on investors and pensioners.

Critics say they lack transparency and damage the role of a stock exchange as a venue for investors to establish asset prices. Exchanges have often also argued that dark pools, while useful for investors, rely on the prices provided by transparent exchanges to transact business.

By creating an auction period, the LSE hopes to draw the business back on to the exchange, with investors able to benchmark against transparent prices. According to statistics from the LSE, during continuous trading hours the average size of order is about £5,000-£7,000.

During the current two daily auction period, at the beginning and end of the day, that amount rises to about £30,000. The consultation closes on April 17.