Press releases 2003

29 April 2003

London Stock Exchange plans enhanced trading services for mid-cap stocks

The London Stock Exchange announced today plans to enhance its trading service for mid-cap securities with the creation of a new hybrid market segment that will combine the benefits of the SETS electronic order book with those of market making.

SETSmm, will be a new trading service for FTSE 250 securities currently traded on SEAQ, and other qualifying SEAQ securities.  It will be an electronic order book based on SETS with the added support of continuous liquidity provision from committed market makers.  The effect will be to combine the best of the Exchange's SETS and SEAQ trading services.

The move follows widespread discussions with market participants from which the Exchange has drawn up a new service proposal designed to:

• Strengthen the central market
• Maximise efficient and effective price discovery
• Open up the market to a wider user base
• Guarantee continuous liquidity provision
• Attract broad market support
• Foster greater transparency in price formation.

The key features of SETSmm will be:

• Continuous order book offering automated execution
• Opening and closing auctions
• Market makers providing continuous bid and offer prices
• Trading supported by central counterparty facility and settlement in CREST or Euroclear Bank.

At the same time, the Exchange will also introduce functionality to its trading system that will allow order book participants to enter large orders onto the book while revealing only a portion to the market.  These Iceberg orders will be eligible for SETS as well as SETSmm and will allow users to work larger orders through the book with reduced market impact.

These trading service enhancements are the latest of a number of market developments since the Exchange's launch of SETS in 1997.  Previous enhancements have included auction functionality and the introduction of a Central Counterparty and settlement netting facility.  In the period since its launch, SETS' market share of eligible equity trading by value has increased from 48 per cent to around 66 per cent.

Clara Furse, Chief Executive at the London Stock Exchange, said:

"SETSmm will increase the number of securities traded on SETS.  The benefits will include tighter spreads, lower transaction costs, greater transparency and improved liquidity for the FTSE 250 stocks."

The Exchange is aiming to launch SETSmm and iceberg functionality in September 2003.

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For further information, please contact:
Tiffany Hardie-Evans    Press Office    +44 (0)20 7797 1222

Notes to editors:

• The SETSmm proposal document can be found at:
  http://www.londonstockexchange.com/trading/setsmm.asp
• How SETSmm will fit in:
  Once SETSmm is launched, our trading services will look like this:
  
  SETS: The top 180 or so most liquid stocks including FTSE 100 securities and reserves
  SETSmm: All FTSE 250 securities not already traded on SETS, plus Irish securities.
  
  SEAQ and SEATS plus support trading in the remainder of the UK market, including
  AIM with SEATS plus being used for those firms which have less than two market
  makers.
• Iceberg functionality
  Iceberg functionality allows order book participants to enter large limit orders onto the book while revealing only a portion of the order (the peak) to the market.  Once the peak is fully executed a new peak will be added to the order book.  This process will continue until the whole order is executed or the remainder is cancelled or expires.
• SETS – the electronic order book
  It is now five years since the launch of SETS and the service continues to go from strength to strength. Overall, the market is benefiting from tighter spreads, greater liquidity and lower execution costs. Usage of SETS continues to grow, as shown by recent record increases in the number of orders entered, the number of firms using the order book and order book share of business.
  http://www.londonstockexchange.com/trading/sets/about_15.asp
• About the London Stock Exchange:
  The London Stock Exchange is one of the world's leading equity exchanges and a leading provider of services that facilitate the raising of capital and the trading of shares.
  
  The London Stock Exchange is the most international equities exchange by trading in the world and Europe's largest pool of liquidity.  By the end of 2002, the market capitalisation of UK and international companies on its markets amounted to £3.1 trillion, with £4.6 trillion of equity business transacted over the year.
  
  The London Stock Exchange is a Recognised Investment Exchange (RIE) under the Financial Services and Markets Act 2000 and is supervised by the Financial Services Authority.