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CHAPTER 5: THE TRADING OF SECURITIESON THE JSE
5.2 TRADING IN AN OPEN OUTCRY SYSTEM
• Open outcry market (1887-1996):
• Market participants (e.g., brokers) gathered at a specific
location
• Called out the name of the company in which they wanted to
buy/sell shares
• Within 7 business days: Share certificate and signed transfer
forms; payment
• Disadvantages:
• Limited number of shares could be traded on a daily basis
• Misunderstandings amongst brokers
5.3 ELECTRONIC TRADING
• 1996: JET-system (Johannesburg Equities Trading system)
• Continuous screen trading
• Computer program connects executable requests
• Passive orders on order book
• 2002: JSE-SETS (Stock exchange trading system)
• London trading system
• Two ways of trading:
• Continuous trading (similar to JET)
• Auctions certain times of the day
• 2007: JSE TradElect system
• Trading platform was based in London
• Considerable increase in trading volumes
, • 2013: Millennium Exchange
• Trading platform moves to Johannesburg
• Trading 400 times faster than with TradElect
• Increased market liquidity
• 3 auctions; rest of the day trading takes place on
continuous basis
5.4 ORDERS TO BROKERS
5.4.1 Market order:
• Simplest order that client can give to broker
• Only specifies the number of shares that should be bought/sold
• Example: Buy 1 000 ABSA shares
• Broker obtains shares at the best possible price
• Buy @ lowest possible price
• Sell @ highest possible price
EXAMPLE
5.4.2 Limit order (pg. 82):
• Number of shares and price limit are specified
,• Broker buys/sells shares at the prescribed price or better
• Buy order: Highest price that client is willing to pay
• Sell order: Lowest price that seller is willing to accept
EXAMPLE
, 5.4.3 Stop order
5.4.4 Bear transaction
• Electronic trading:
– Negotiate beforehand with loan agent (usually CSDP) to borrow
shares
– Pay loan fee to loan agent
– Provide security (guarantee) to loan agent
– Bear receives money for transaction on T+3 days
– Bear should buy shares to replace loan agent’s shares
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