Where stock markets used to have a physical presence where people met and haggled about deals, electronics has liberated them so the disseminated market is everywhere and nowhere. This is presenting the authorities with an increasingly difficult task in monitoring, and presents the investor with a growing challenge to make sure the deal is authentic, the price is right and the securities really are being transferred.
The London market operates a software called Seaq for the smallest company trades. For the majority of dealings the market uses Sets (the Stock Exchange Electronic Trading System). This is an order-matching system, so buyers and sellers post their requirements and if possible the computer matches them. Since these screens show not even the broker, much less the investor, only the two sides to the deal know the identity of the ultimate buyer and seller. There is also SETsq for the less liquid (ie less traded) securities.
Companies have been moving to Sets MM, an electronic system that involves market-makers (hence the MM) divulging their bid and offer prices. The Stock Exchange says this cuts spreads and increases the value of shares traded. The completed deal is passed to yet another computer to organize settlement. The Crest system is trying to eliminate the blizzard of paper by replacing share certificates with an electronic record in much the same way that one’s hoard of gold and cash has been transformed into an item in a bank’s computer memory. For the mistrustful and Luddite investors, share certificates are still available.
Many of the execution-only brokers try to simplify life by putting their investors’ holdings into a ‘nominee account’. That means the shares are registered to one broker account in the Stock Exchange and the companies’ share registers, which make the deals quicker and cheaper.