Trading System Improvement At London Stock Exchange

Abstract

Trading system improvement at London Stock Exchange was taken up in the year 2001, although the exchange has been making necessary changes whenever required. Three different trading activities were introduced and the settlement period was also changed.

The LSE or the London Stock Exchange has continued to invest as well as develop its trading activities over the years. There were few changes, which were effected in the London Stock Exchange. For instance, the standard settlement period pertaining to equities was brought down to 3 days from 5 days. For the trading activities, which took place on "electronic order book trading system", a counter party service was set up.

Trading system improvement at London Stock Exchange or LSE included the following enhancements. The end of the year 2001 witnessed the London Stock Exchange set up the following trading systems.

International Order Book was the first enhancement: This trading system was set up so that the market securities, which are emerging may be enhanced.

SEAQ or Stock Exchange Automated Quotations System was the second initiative. This enhancement made it possible for the customers to be participants of the SEAQ securities auctions.

International Retail Service was the third enhancement. This enhancement allowed the retail traders more active in trading stocks of international blue chips.

Changing the standard settlement period to T+3:

Earlier (prior to 2001), the domestic equity market of the London Stock Exchange operated in the T+5 system. This was the "standard" settlement period since the year 1995. The settlement period may also be made up to 25 days by means of a mutual agreement. It was observed that approximately 75% of the trades involved for settlements. There is another cycle date-T+10. This settlement period is meant for the certificated investors since T+5 would not be enough.

In reality, the international standard pertaining to trading activities is T+3, meant for settlements, which was introduced in the year 1989. Shorter cycles are preferred because they minimize risks to a great extent. The reason being, the interval between trading activities and settlements reduces chances of problems cropping up.