SETS Some info...16 Dec 2019 18:25
https://www.fool.co.uk/investing-basics/how-the-stock-market-works/sets-and-seaq/
SETS
For the larger companies quoted on the LSE, there are many trades taking place every day (often with millions of pounds worth of shares changing hands), and that’s where the LSE’s flagship trading system, SETS, the Stock Exchange Electronic Trading Services, comes into play (and yes, there probably should be two Es in there).
SETS was launched in 1997, and was originally used to trade shares in the 100 largest companies listed on the FTSE-100 and some of the next largest group of companies on the FTSE-250. Today, it has also been extended to include around 900 companies, including many in the FTSE Small Cap index and the most heavily traded AIM shares.
The idea behind SETS is largely to minimise the the number of shares needed to be held by market makers using traditional systems in order to create a liquid market and guarantee that buyers and sellers can always find someone to buy from or sell to, and so reduce the risk faced by market makers, in turn reducing the costs needed to compensate for that risk.
I suggested last time that when you place an order to buy or sell shares, you might think that your broker will go off to the market, armed with your order, and ask around the other brokers, “Do any of you have any customers trying to sell shares in this company?” For smaller companies traded using traditional systems, that would really not be effective (which is where SEAQ comes in), but it is exactly how SETS works for companies that are widely traded. What your broker does is enter your order on the SETS system, and the system will match it to other individual investors wishing to buy or sell shares at the same time. With such largely traded stocks as those found on the FTSE 100, it can be pretty much guaranteed that there is enough trading going on to find someone to sell shares to you, or buy them from you, in a very short space of time.
In doing so, SETS bypasses traditional market makers, and so reduces the spread between the bid and offer prices. Some input from market makers will be needed to fill the occasional gaps when there isn’t a matched bargain available, but as that is rarer with larger companies, in general the larger the company the lower the spread.
If you, say, want to buy 10,000 shares in a particular company, you don’t have to find someone wanting to sell exactly that number. SETS might match your order up with several sellers who want to sell fewer shares, or take a portion of the shares that a larger seller wishes to dispose of.
In doing so, SETS bypasses traditional market makers, and so reduces the spread between the bid and offer prices. Some input from market makers will be needed to fill the occasional gaps when there isn’t a matched bargain available, but as that is rarer with larger companies, in general the larger the company the lower the spread.
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