MECHANICS OF TRADING By George Edwards - PowerPoint PPT Presentation

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MECHANICS OF TRADING By George Edwards

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  1. (THE GUYANA STOCK EXCHANGE) MECHANICS OF TRADING By George Edwards

  2. What GASCI Does • GASCI operates a market in securities which matches buyers and sellers and generates “confirmed trades” which the brokers are legally committed to honour. • Trading is supported by a “Limit Order Book” • The settlement of the trade is between the brokers

  3. Buying or Selling of Shares • Investor wishing to buy or sell shares places an order with a broker. • To buy, the investor deposits funds with the broker to cover the proposed purchase. • To sell, the investor deposits the share certificate and a signed transfer form with the broker.

  4. Limit Orders and Discretionary Orders The investor may Specify a price or a price range. Give the broker the discretion to negotiate the most favourable price. Note: The broker is bound by law to obtain the best price available on the market for the investor i.e. for the buyer – the lowest price available for the seller – the highest price available

  5. In-house Crosses • If the broker has a matching order to buy/sell, the trade will be made in-house and reported to the Stock Exchange before the next trading session. • If the trade cannot be completed in-house, the broker takes the order to the Stock Exchange at the next trading session. Trading takes places on Mondays or Wednesdays when Monday is a Public Holiday. Trading starts at 10:00am

  6. Trading System • Bids and offers are recorded on the Limit Order Book. This is viewed by all the brokers. • The Initiating Broker is the one who had entered the order display in the Limit Order Book. • The Responding Broker then tells the Initiating Broker (verbally) that he/she will buy/sell at the price entered by the Initiating Broker.

  7. Price & Time Priority • Buy orders are on the left and sell orders on the right of the Order Book. Orders are dealt with based on price and time priority. • Time priority between the brokers is set by the sequence the orders are entered on the Limit Order Book by each broker. • Price priority has preference over time priority; • a buy order at a higher price has priority over a buy order at a lower price even if the lower priced order was entered first; • a sell order at a lower price has priority over one with a higher price even if the higher priced order was entered first.

  8. The Limit Order Book Display(Brokers Only)

  9. Cross Trades during the Session • Broker promptly records customer order • Broker matches with another customer or • Broker verbally indicates the intention to do a cross for specific issuer. Provided no other broker intervenes, the broker may complete the transaction.

  10. Cross Trades cont’d • A broker may intervene by improving the price on either side of the cross. • if responding to an offer, the broker must bid higher than the cross price but not higher than the next best offer. • if responding to a bid, the broker must offer stock lower than the cross price but not below the next best bid.

  11. Limit Order Book - Cross

  12. After the Trading Session • GASCI produces summary of reported trades for verification by brokers – Trade Report • After brokers verify the trades, GASCI confirms trades and issues a market contract for each buyer and seller. • The Market Official prints the following reports for distribution to the Guyana Securities Council, Brokers and the Public : • Trade by Broker – shows all trades for each broker • The Trade Journal – shows all the trades for the session. • The Limit Order Book – shows the remaining unfilled orders for the respective issuers. • The Market Journal – shows the last trade volume and price details of all the issuers.

  13. Settlement • Settlement is the process of honouring a transaction securely and promptly • arrangements for payment by way of certified cheque or transfer of cleared funds • arrangements for transfer of ownership by means of a transfer document and update of the shareholder register

  14. Market Side Settlement • Brokers settle with each other on “Settlement Date ” • Settlement date is: • Determined by market rules – T+5 • In accordance with the principle of delivery versus payment • Note: A Share Certificate is not needed for market side settlement – a signed transfer form certified by the Exchange is binding.

  15. Client Side Settlement • Settlement is complete when funds have been transferred from the buyer through the buying and selling brokers to the seller. • Ownership is updated in the issuer’s books.