A Large in Scale (LS) trade is a specific type of transaction in financial markets, defined by its execution method and size. According to the provided reference, it is essentially a pre-arranged transaction that happens off the main exchange trading system.
Understanding Large in Scale Trades
Based on the reference, a Large in Scale trade is characterized as:
- Pre-Agreed Transaction: It is defined as a trade where both legs are a pre-agreed buy and sell agency or principal. This means the buyer and seller, and the terms of the trade, are agreed upon privately beforehand.
- Off-Book Execution: Unlike standard orders, the LS trade order is not displayed on the central order book. This prevents the potential price impact that large orders might have if exposed to the wider market before execution.
- Non-Interactive: The trade does not interact with the central order book's existing orders. It is a separate, executed transaction reported afterward.
- Reporting Requirement: Despite being off-book, the trade is reported to the exchange. This ensures transparency and regulatory compliance.
- Minimum Size: The size requirement for an LS trade is significant. The reference states, "The minimum size requirement of the LS has been aligned to JSE's Block Trade criteria." This indicates that LS trades involve a substantial quantity of securities, meeting specific criteria set by the exchange (like the JSE).
Key Features of LS Trades
LS trades facilitate the movement of large blocks of shares or other securities without disrupting the market price that might occur if such a large order was placed directly onto the visible order book.
Here's a summary of their key operational features:
- Execution Method: Bilateral (between two parties) and pre-arranged.
- Visibility: Not visible on the public order book before execution.
- Market Interaction: Does not match against orders in the public book.
- Reporting: Mandatory reporting to the exchange post-execution.
- Size: Meets or exceeds a predefined large threshold, often linked to block trade criteria.
Why Use Large in Scale Trades?
LS trades are typically used by institutional investors or parties needing to buy or sell significant volumes of securities efficiently. They offer:
- Price Certainty: The price is agreed upon beforehand, reducing price risk during execution.
- Reduced Market Impact: Executing a large volume off-book minimizes potential price fluctuations that could be triggered by a large order appearing on the central book.
- Efficiency: Facilitates large transactions quickly between willing parties.
In essence, a Large in Scale trade is a controlled, private execution method for substantial transactions that are subsequently reported for market oversight.
