New At the Tel Aviv Stock Exchange - Block Trade Facility

TASE Launches Protected Block Trade Facility, Expanding Trading Capabilities

This is part of TASE's strategy of upgrading the Israel capital market and aligning it with global standards

TEL AVIV, Israel, Nov. 4, 2024 /PRNewswire/ -- The Tel-Aviv Stock Exchange (TASE: TASE) announced the launch of a new trading platform that facilitates the pre-arranged and protected execution of large-scale transactions on TASE, commenced November 3, 2024, having been approved by the Israel Securities Authority.

The system, which uses a block order, will enable the execution of pre-arranged transactions on TASE in a manner that precludes a price impact and the leak of the information to other parties that could potentially interfere with their execution. By offering investors additional tools, TASE realizes its strategy of standing on par with leading international exchanges that employ various mechanisms for the execution of protected large-scale transactions in securities.

At present, pre-arranged transactions can be executed in one of two ways: on TASE, in any of the securities traded thereon - a pre-arranged transaction that is susceptible to third-party interference, or as an off-exchange transactions (excluding derivatives) that is unsusceptible to third-party interference.

When executing a matching transaction (on-exchange) - customers can coordinate on a bilateral basis the execution of a transaction on TASE and submit buy and sell orders through the order book. Matching orders executed constitute a matching transaction. TASE's existing trading method, which grants preference based on price and timing, provides no assurance of the transaction being performed with the counterparty. The matching orders are not interference-proof and could be matched with the order of a third party. 

In an off-exchange transaction - customers can coordinate a transaction on a bilateral basis and report the transaction to the TASE Clearing House, through the TASE members, as an off-exchange transaction in securities, excluding derivatives.

About the Block Trade Facility

As part of its ongoing efforts to upgrade the capital market and in response to the interest expressed by multiple market participants in protected pre-arranged transactions, TASE has developed a platform that enables, for the first time, the execution of such transactions, also on TASE. The BTF (Block Trade Facility) system, which uses a new Block order, has several characteristics:

• Protection - The transaction will be bilaterally coordinated between the counterparties and will be conducted between them without interference.
• Minimum order size - A liquid and deep order book is a top priority for TASE, and therefore a minimum order size is prescribed. The proposed minimum size is designed to ensure that only large-scale orders are submitted in the block facility, which would allow institutional to submit a large order without interference.
• Reference price - This parameter is based on market data, whereas the BTF Order Price Collar is determined as a percentage, effectively restricting selling and buying orders to its range. TASE believes that it is necessary to set a reference price and Price Collar for block trades to prevent their prices from drastically deviate from the current prices in the order book. For derivatives - TASE believes that, in line with global practices, it is not feasible to set a reference price and price collar for derivatives, as their prices are prone to significant fluctuations during the trading day, and since pre-arrange transactions in derivatives are already available, which do not include a reference price mechanism (in practice, these are non-protected block trades).
• Hidden - The order will not be presented in the order book.
• Dissemination - The transaction will be disseminated on TASE's IT systems immediately upon its execution. 

The block trade facility offers multiple advantages for the execution of protected pre-arranged orders in all possible aspects, starting from no execution risk, eliminating the operational risk that arises from unprotected orders and exposes the parties to a partial execution of the transaction, through to regulatory advantages, as it eliminates the need for approval by the public institution's extraordinary transactions committee, which is often required for off-exchange transactions.  The design of the block trade facility is intended to provide the institutional investors significant regulatory advantages over off-exchange transactions. In addition, the block trade facility reduces the credit risk involved in the execution of off-exchange transactions and enhances transparency, as the transactions are immediately published.

The TASE Staff's discussions with the market participants suggest further added values for the local capital market -

The price of non-protection - In the absence of a protected block trade facility, brokers are required to price the risk by increasing the spreads, which raises the end-customer's acquisition costs.

Competition - The substantial risk involved in a matching transaction means that non-bank TASE members are unable to handle the exposure involved in a guaranteed price, which is required by foreign customers. This undermines their competitive standing with foreign customers and forces them to conduct such transactions off-exchange or to avoid them altogether.

Compatibility with generally accepted global practices

Many global exchanges address their customers' need to execute large-scale transactions, while preventing price impact and information leaks. The leading exchanges have developed various mechanisms for conducting large-scale transactions in shares and/or derivatives that provide such protection to the customers.

For instance, certain European exchanges define a minimum order size for RFQ or block platforms. The regulator in Europe has defined a LIS (Large in Scale) parameter that distinguishes between large-scale transactions and "standard" transactions, at the individual security level. The establishment of this parameter was motivated by the exemption of large-scale transactions from pre-trade transparency and their often-delayed publication.

A position paper drawn up by the Stock Exchange of Hong Kong, which quotes applicable academic studies, suggests that block trades (upstairs markets) do not undermine the trading in the order book (downstairs market), but rather complement it. Trading data collected from various exchanges, such as Euronext, Toronto, ASX and NYSE, support a similar conclusion.  

Block trade platforms are currently available in leading international exchanges - both for shares, such as in Euronext, the SIX in Switzerland, and Nasdaq Nordic, and for derivatives, such as the derivatives' exchanges in the United States (CME), Australia (ASX) and Canada (TMX).

What is a block trade?

A block trade is a transaction the details of which are pre-arranged between two parties. The transaction details include: security, quantity, price, identification code.

• After coordinating the transaction details, both parties submit a block order to the exchange.
• The orders are not visible to the other participants (hidden).
• Block orders with identical details are matched to form a block trade.
• Block orders are designed for big participants - for example, the minimum order size for shares included in the TA-35 index is NIS 2 million.
• A block trade affects the turnover of the security but does not affect its last price.

The transaction will be disseminated on TASE's IT systems upon its execution, enhancing market transparency and accessibility

Contact: 
Orna Goren
Head of Communication and Public Relations Unit
Tel: +972 76 8160405
[email protected]

SOURCE The Tel Aviv Stock Exchange Ltd.