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On the London Stock
Exchange, trading takes place electronically but mainly under two different
systems. For higher volume stocks (typically FTSE-100 and other larger
companies) the system used is called SETS which is basically an electronic
matching of buy and sell orders using an open order book. For smaller
companies, the trading is performed by a more traditional system of market
makers, who quote a bid/offer price at which they are prepared to deal. It
can be important to know which system is in use as the "price action" can be
quite different - for example the activities of market makers in thinly
traded stocks may mean that the price moves in apparent contradiction of the
trading taking place, whereas the more active and open SETS market can be
subject to other kinds of price volatility and for different reasons.
UKSA made a number of
submissions when SETS was first proposed, and in subsequent years. See:
SETS_Response_1996
SETS_Response_Sheridan_1996
SETS_Request_for_OFT_Enquiry_1996
SETS_Phase2_1998
SETS_Phase3_1999
Shareholders do not usually know what happens
when they place an order to buy or sell shares. The stockbroker they use can
place it with a number of different market makers (as usually more than one
market maker is operating in the market for a stock). Even with SETs traded
stocks, there are some alternative markets outside the London Stock Exchange
that could be used, with possibly better prices. The basis of the
relationship between the retail stockbrokers and these third parties is of
some interest, if the "best" price is to be obtained. Read the following for
a submission by UKSA on this issue:
Best_Execution_2001.
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