LSE Marks Second Anniversary Of SETSmm

The London Stock Exchange marked the second anniversary of the introduction of SETSmm, its hybrid electronic trading system, which gives investors the option of trading through Market Makers or directly on the order book, by issuing research on the performance

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The London Stock Exchange marked the second anniversary of the introduction of SETSmm, its hybrid electronic trading system, which gives investors the option of trading through Market Makers or directly on the order book, by issuing research on the performance of the market over the past two years.

Since its introduction, SETSmm has aimed to improve the trading of FTSE Mid and Small Cap Index securities. Since its launch on Monday November 3, 2003, for the trading of Main Market Mid Cap securities, market participants have benefited from tighter spreads, greater liquidity and a growth in the overall size of the market.

Over the last two years of Mid Cap trading on SETSmm, the average value traded per Mid Cap security per day has increased by 77%, and average spreads have improved by 65%.

In July 2005, after an extended period of market consultation, the Exchange introduced SETSmm to the largest 200 FTSE Small Cap Index securities. In the subsequent three and a half months of trading, spreads have consistently tightened by over 25%; value traded has correspondingly increased by almost 25%.The greater market efficiencies created by SETSmm have led to a direct reduction in trading costs paid by investors. Analysis of all trades from August to October 2003, compared with the corresponding months in 2005, have confirmed that the real cost of trading in the securities that have moved to SETSmm have fallen by almost 50% over the last two years. This corresponds to average saving to investors of £28 million per month-equivalent to a total of over £330 million on an annual basis.

Martin Graham, the Exchange’s director of Market Services and head of AIM, said, “SETSmm has been a huge success since its launch two years ago. It has combined the benefits of an electronic order book with the valuable support of committed market makers, brought about a reduction in spreads which in turn has stimulated increased trading. It has also encouraged the entrance to the market of new participants who prefer order-book trading. As a result, the increased size and efficiency of the market has delivered benefits to all participants, with end investors benefiting from a reduction in trading costs of over £330 million a year.”

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