Order Driven share dealing

An order driven share dealing system operates where buy and sell instructions are fed into a central computer system and matched automatically.

Computers do it all - theres no need for human intevention; which should mean transactions are completed more efficiently thereby bringing down the cost of trading. Thats the theory at least.

On 20 October 1997 the so called Big Bang 2 heralded the beginning of a limited order driven share dealing mechanism when the SETS system was launched.

In the new quote driven world market makers are obsolete and are replaced by Retail Service Providers RSPs. Unlike market makers RSPs are not bound to quote buying and selling prices. If they choose they can refuse to deal. This could be bad news for private investors in the event of a market crash.

This automatic matching of buyers and sellers in theory should narrow the spread between buying and selling prices and reduce the brokerage transaction cost being paid by the person carrying out the deal.

See also Stockmarket

2009-02-17 00:00:00 © Moneyextra.com