Mechanics of trading by george edwards
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(THE GUYANA STOCK EXCHANGE). MECHANICS OF TRADING By George Edwards. 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”

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(THE GUYANA STOCK EXCHANGE)

MECHANICS OF TRADING

By George Edwards


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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


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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.


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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


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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


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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.


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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.



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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.


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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.



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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.


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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


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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.


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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.


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