Stock Exchange stamps on 'snake in the grass' traders

The Stock Exchange made final adjustments to its order-driven share trading system yesterday in preparation for Monday's launch. Tom Stevenson, financial editor, assesses the changes introduced after the mixed success of the system's dress rehearsals.

The Stock Exchange took a decisive step yesterday to ensure there is an orderly market when order-driven trading transforms share dealing in the City on Monday. It said it would change the rules in a bid to stamp out so-called "snake in the grass" traders who have caused havoc in test runs of the new automated system by deliberately inputting orders at ridiculous prices.

A snake in the grass trade works by inputting a buy order for a stock at a very low price in the hope that a rival firm will make an error and accidentally input a matching sell order. The computer automatically deals when buy and sell orders match, regardless of how close to the prevailing market price the orders are.

In an attempt to counter that threat, the Stock Exchange said yesterday it would "treat as a potential regulatory abuse" the entry of an order that was more than 20 per cent away from the current market price unless it was entered with the prior approval of the Exchange.

Gavin Casey, the Exchange's chief executive, also moved to ease concerns that keyboard errors could lead to firms being exposed to much larger transactions than they expected. Starting on Monday, the order book will only accept orders for 10 times the normal market size for any given share.

Mr Casey said the potential risk to member firms of putting in enormous orders by, for example, slipping in an extra '0' far outweighed those occasions when a firm would want to input a very large order. He added that the limit was only an interim measure and said it would be kept under review.

The Exchange also warned yesterday of the dangers posed to firms of using "at best" trades where orders are placed with no restriction on the execution price that would be acceptable. It said firms should use "limit orders" to avoid having a trade executed at a disadvantageous price, even if it steered clear of a snake in the grass.

Yesterday's adjustments marked the final changes to the Stock Exchange's SETS order-driven trading system, which from next week will offer an alternative to the quote-driven telephone-based system in force since Big Bang in 1986 did away with floor trading. Initially it will only apply to the FTSE 100 index of leading stocks, but there are plans to roll it out to the next 250 shares as soon as possible.

All eyes will focus on the success of the automated trading project, which has tied 200 firms directly into the Stock Exchange and represents the biggest change to the way shares are traded in 11 years. The credibility of the Stock Exchange, tarnished by previous failures such as the ill- fated Taurus computer system, hangs in the balance.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future