The London Stock Exchange is the United Kingdom’s major stock exchange and the world’s leading exchange for international business. The London Stock Exchange started its development during the 18th century around Jonathan’s cafi??. The first stock companies started during the 18th century where there was money needed in order to finance sea voyages to unknown places of the new world looking for lucrative booties. The structure and organisation of the London Stock Exchange remained the same until the BIG BANG which happened in 1986.
Updating the system In 1986 London became one of the first financial centres to see trading move out of the pits, off the market floor and on to the telephone. This was the Stock Exchange Automated Quotations system (SEAQ), and it was achieved by using a screen-based electronic bulletin. Market makers now competed to display the best prices for each listed stock, with trades been consummated over the telephone. SEAQ lists the market makers’ bid and offer prices, together with the Normal Market Size at which those prices will be honoured.
Shares traded using SEAQ are said to be traded on the ‘quoted book’. SETS – the latest phase On the 27th of October 1997 the London Stock Exchange completed its electronic update in trading when it replaced the Stock Exchange Automated Quotations system with the Stock Exchange Electronic Trading System (SETS) for the top 100 shares. Today almost 200 securities are traded on SETS covering the FTSE 100 index, the most liquid FTSE 250 securities, equities that have a LIFFE equity option and some Irish stocks traded in euro.
The order-driven trading service gives to all market participants the flexibility and transparency the need to ensure that every buy or sell order gets the optimal level of exposure and to ensure a cost efficient execution. Order book (Order book is a facility which is operated by the Stock Exchange for the electronic submission and automatic execution of orders in ‘order book’ securities) trades in all UK securities are covered by a central counterparty operated by the London Clearing House.
The new system is based on The Compaq Nonstop(tm) Himalaya server which was selected as a highly reliable platform was needed according to the head of Information Technology for the London Stock Exchange, Jonathan Wittmann. He also commented it was wanted a solution that was sufficiently scalable to achieve the targets of the London Stock Exchange for throughput on trades and for fast response times reporting back to dealers. With this system the London Exchange Market protects its position to the international markets but also enhances it.
Also the SETS system has the ability to trade stocks in 30 different currencies. SETS’s electronic order book means trades are conducted less and less by telephone. Instead, orders to buy and sell shares are displayed and matched on a computer screen. This is designed in order to give a better picture of what is happening to the market. This system matches automatically the buyers and sellers that exist that moment to the stock exchange and are authorised to use the SETS. The old system (SEAQ) is still used for those stocks which are too small to trade in SETS.
The London Stock Exchange introduced SETS to tackle the huge volumes of business. Over the longer term the move is expected to lead to lower trading costs and a higher volume of trades. The Internet has the ability to bring something to the bond market that it needs which is the ability for buyers to compare prices. This ability has always been a difficult task because calling takes time and things can change between calls. These new electronic systems can bring that information about participants together, but the significance of that information depends on who is participating. It is the dilemma that we must have.
We must have sellers to attract buyers and buyers to attract sellers. Its usefulness comes from its ability to enable collectors to trade directly rather than through intermediaries such as dealers. The new system does not affect the way that the stock market was working until that point. This means that the costumer can still deal through a broker and either seek advice or ask them to execute an order for him or her. With SETS there is no market maker acting as an adjuster between the buyer and the seller and so the spread between the price bought and the price sold is narrower.