As a result of further extensive international research, the JSE Committee recognised the advantages of a fully automated trading system ("ATS").
The JSE is implementing an ATS which is order driven and operates on central market principles. Dual trading capacity will be complemented by allowing members to voluntarily act as market makers. There will be two auxiliary windows which support trading. One provides the facility for market makers to voluntarily quote two-way prices and the second caters for orders of a special kind such as "ex-dividend".
The cornerstone of the order driven system is a central order book ("the book") managed by the ATS. The book is open to members via their trading work stations which are linked to the ATS. Dealers enter buy and sell orders on the work stations. The orders are immediately included anonymously in the summary display of the aggregate of orders in the order book for all dealers to view.
The order book is divided into a bid and offer side and organised on the principle of priority, where orders when registered in the book, are ranked first in priority of price and then time within price. The bid with the highest price is placed on the top left of the order book and the offer with the lowest price at the top right of the order book. The system continuously seeks to match the bids and offers, comparing new orders and those in the book to each other and executing trades whenever the terms of the orders match. Members are advised immediately of the trades following matching.
Let us illustrate by way of an example:
Member A enters a buy order for 3,000 XYZ shares at 10.00am at a price of 100 cents per share.
Member B enters a buy order for 2,000 XYZ shares at 10.30am at a price of 100 cents per share.
Member H enters a sell order for 4,000 XYZ shares at 10.45am at a price of 100 cents per share.
The ATS will automatically execute the following deals (transactions):
Member H sells Member A 3,000 shares at 100 cents per share.
Member H sells Member B 1,000 shares at 100 cents per share.
Member B remains a buyer for 1,000 shares at a price of 100 cents per share.
A specialist will manage an electronic order book for odd lots against which incoming orders will automatically trade.
As indicated above, there are auxiliary facilities which support market making. Any member may play the role of a market maker. Control over the risk exposure is exercised through the new capital adequacy rules for member firms.
Whilst every care has been taken in the preparation of this article, the JSE is not responsible for any errors or omissions contained therein. Readers should therefore study the original Act, rules and other documents referred to or consult with the JSE before acting on any information supplied.
For further information kindly contact: JSE Public Relations Department, PO Box 1174, Johannesburg 2000. Tel: 377 2200; Fax: 834 7402; or do a text search "Johannesburg Stock Exchange" and "Business Monitor".
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