Definition
Stock Exchange Trading System (SETS) refers to an advanced real-time electronic order book system created by the London Stock Exchange (LSE) for trading securities. SETS is designed to match buy and sell orders more efficiently and provides enhanced transparency and liquidity to the market. By utilizing an electronic order book, SETS ensures fair price discovery and facilitates the execution of high volumes of trades swiftly and accurately.
Examples
- Blue-chip Stocks: SETS is commonly used for trading shares of large, well-established companies, such as those listed in the FTSE 100 index. For instance, shares of companies like Unilever and HSBC are traded on SETS.
- Exchange-Traded Funds (ETFs): SETS also supports the trading of ETFs, which track indexes like the FTSE 250 or other asset classes. These funds benefit from the liquidity and transparency provided by the electronic order book.
- Cross-Orders: A large institutional investor might use SETS to place a cross-order for a substantial quantity of shares, taking advantage of the system’s ability to find matching orders and execute trades swiftly.
Frequently Asked Questions
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What is the primary function of SETS? SETS is employed to facilitate the efficient matching and execution of buy and sell orders for securities listed on the London Stock Exchange.
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How does SETS improve market transparency? SETS enhances market transparency by providing real-time order book data, displaying the prices and quantities of all buy and sell orders.
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Can individual investors access SETS? While individual investors typically access the system through brokers, institutional investors and market participants can interact directly with SETS.
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What types of securities are traded on SETS? SETS handles the trading of various securities, including equities, ETFs, and other financial instruments listed on the LSE.
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How does SETS contribute to price discovery? By matching orders electronically and displaying order book data, SETS provides a clear indication of supply and demand, contributing to accurate price discovery.
Related Terms
- FTSE 100 Index: A market-capitalization-weighted index of the 100 largest companies listed on the LSE. Frequently traded on SETS.
- Electronic Communication Network (ECN): An automated system that matches buy and sell orders for securities, similar to SETS but typically used in different markets.
- Liquidity: The degree to which an asset can be quickly bought or sold in the market without affecting its price. SETS enhances liquidity for listed securities.
- Order Book: A list of buy and sell orders for a specific security organized by price level. SETS utilizes an electronic order book for transparent trading.
Online References
Suggested Books for Further Studies
- “Electronic and Algorithmic Trading Technology: The Complete Guide” by Kendall Kim
- “Trading and Exchanges: Market Microstructure for Practitioners” by Larry Harris
- “Algorithmic Trading: Winning Strategies and Their Rationale” by Ernie Chan
- “Market Microstructure in Emerging and Developed Markets” edited by Hossein Nabilou and Richard Hagen
Accounting Basics: “Stock Exchange Trading System (SETS)” Fundamentals Quiz
Thank you for exploring the Stock Exchange Trading System (SETS) in depth and testing your knowledge with our carefully crafted sample exam quiz questions. Keep honing your understanding of financial markets and trading mechanisms!
