 Traditionally, trades from private investors are executed by your broker via a retail service provider (RSP), and do not execute on the central order book of the London Stock Exchange (“off book”).
- An RSP is an automated quoting system similar to a computerised market maker – it is electronically connected to brokers who normally request quotes from several RSP’s and trade on the best price.
- RSP’s trade in a principal capacity (i.e. trade on their own account) and these off book executions must be traded under the rules of, and reported to a Recognised Organisation (investment exchanges recognised by the FSA and overseas equivalents) such as the London Stock Exchange.
- Though a broker is treated as a market counterparty and therefore can trade at any price, RSP’s take on the best execution responsibility owed to a typical private investor and will always, at least, match the best bid and offer (BBO or touch) displayed by the Exchange.
- This form of trading is aimed primarily at private investors, so maximum dealing sizes are restricted and there is no direct interaction with the order book.
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Pros |
Cons |
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Immediate execution and single fill – your order can be immediately executed in its entirety if you are happy with the price quoted. |
There is no direct interaction with the order book and therefore no way to contribute to and benefit from the central market liquidity and price formation process (i.e. you cannot trade at your own prices inside the quoted spread). No control over trade reporting venue or associated regulatory standards/controls and market monitoring as your trade is off book and can be reported to any RIE. |
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Price improvement – often an RSP will offer a price that is better than the published BBO/touch. |
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Extended settlement – particularly useful for those holding paper share certificates. |
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Cheap broker commissions. |
Wider spreads (i.e. buy at higher price, sell at lower price) subsidise free RSP executions. |
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