The Workings Of SETS : The London Stock Exchange Electronic Trading Service

I'm happy to say that the LSE's use of bizarre terms is alive and well. The Stock Exchange Electronic Trading Service (SETS), I'm pleased to tell you, is full of these weird and wonderful phrases.

The basis of SETS was launched by the London Stock Exchange in 1997. It was designed to cater for FTSE 100 firms and the largest of the FTSE 250 companies. Since then the system has (as ever) undergone significant change. Here are some of the main points of the SETS system:

SETS deals go through brokers. The brokers enter buy and sell orders through an electronic order book. Market makers have no role in the transaction - thus removing an added layer of costs.

There is no minimum order size. This is very useful to the private investor. The arrival of PEPs and ISAs (both tax advantaged investment plans which effectively hold shares in a nominee type account) meant that many private investors might own a portfolio of shares but never receive annual company accounts. SETS makes it easier to purchase small holdings (many investors now own a number of shares in their tax wrapper and just one share in their own name to ensure that corporate documentation arrives).

Orders may be matched against more than one opposite trade in the order book. The Stock Exchange Electronic Trading System operates on a T+3 basis which means that the financial aspects must be completed on the third working day after the trade.

SETS orders are either:

'At best' which means the trade is carried out at the best possible overall prices

'Execute and eliminate' (What a name!!) is also known as immediate execution. Any amount of an order that can be completed at a set price is done - everything else is discarded.

'Fill or kill' involves the trade being done at exactly the terms specified in the correct volume - or nothing is done at all.

'Limit' orders remain on the SETS screen. They are set for prices that are 'no worse than' and may be filled slowly over time. An expiry date (max of 90 days) prevents these orders running for too long.

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