Stock Exchange Automated Quotations System (SEAQ)

Definition

Stock Exchange Automated Quotations System (SEAQ) - SEAQ is an electronic system utilized by the London Stock Exchange (LSE) to display the prices quoted by market makers. The primary function of SEAQ is to provide price transparency for securities, especially those not traded through more modern trading systems like SETS (Stock Exchange Electronic Trading Service). SEAQ remains crucial for recording prices on the Alternative Investment Market (AIM).

Detailed Explanation

The SEAQ system came into prominence to facilitate the liquidity and transparency of securities trading on the London Stock Exchange. Market makers using SEAQ provide bid and ask prices, enhancing the efficiency of price discovery processes for various securities.

However, with advancements in trading technology, particularly with the introduction of SETS, the role of SEAQ has evolved. While SEAQ was extensively used for all FTSE shares, the larger share listings such as those in the FTSE 250 Index are now executed through SETS.

SEAQ continues to hold relevance for smaller and less liquid stocks, often those listed on the AIM, which caters to smaller companies that may not meet the stringent requirements of larger exchange listings.

Examples

Market Maker Quotes - Suppose a market maker quotes a bid price of £10.00 and an ask price of £10.50 for a particular AIM-listed security. These prices are recorded in the SEAQ system for potential buyers and sellers to view.
Price Transparency - If an investor seeks to view the price movements of a lightly traded stock on the AIM, SEAQ would display a series of bid and ask prices provided by market makers, offering insight into the security’s market value.
Alternative Investment Market - SEAQ plays an essential role in displaying quotes for securities listed in the AIM, thereby facilitating trading and investment decisions.

FAQs

Q1: Why was SEAQ created? A1: SEAQ was created to facilitate transparency and efficiency in price discovery through the quotations provided by market makers on the London Stock Exchange.

Q2: Why has SEAQ’s role changed? A2: With the introduction of more advanced trading systems like SETS, which cater to higher liquidity and more significant trades, SEAQ shifted its role to primarily handle less liquid stocks, including those listed on the AIM.

Q3: What is the difference between SEAQ and SETS? A3: SEAQ focuses on displaying market maker quotes for price transparency, while SETS is a full electronic order book system for more liquid and higher volume securities, particularly those in the FTSE 250.

Q4: Which stocks are primarily traded through SEAQ now? A4: SEAQ is mainly used for recording prices of securities listed on the Alternative Investment Market (AIM) and other less liquid stocks outside the main FTSE listings.

Q5: Can retail investors directly trade via SEAQ? A5: No, retail investors cannot directly trade via SEAQ, but they benefit from the price transparency provided by market maker quotes in SEAQ for decision-making.

Market Makers - Entities or individuals on the stock exchange ready to buy and sell securities, providing liquidity and transparency by quoting continuous bid and ask prices.
Stock Exchange Electronic Trading Service (SETS) - An advanced electronic order book trading system on the London Stock Exchange, used for FTSE 100 and 250 securities.
Alternative Investment Market (AIM) - A sub-market of the London Stock Exchange designed for smaller and rapidly growing companies seeking access to public equity.

Online References to Online Resources

Suggested Books for Further Studies

“The Markets and the Exchanges” by Charles R. Geisst
“Securities Trading: Principles and Procedures” by Larry Harris
“The Handbook of Alternative Assets” by Mark J. P. Anson

Accounting Basics: “Stock Exchange Automated Quotations System” Fundamentals Quiz

### What is the primary function of the SEAQ system? - [x] To provide price transparency through market maker quotes - [ ] To facilitate high-frequency trading - [ ] To replace SETS for FTSE 250 stocks - [ ] To list initial public offerings (IPOs) > **Explanation:** SEAQ primarily offers price transparency via market maker quotes, especially for less liquid stocks or those listed on the Alternative Investment Market. ### Which system replaced SEAQ for trading FTSE 250 stocks? - [ ] NASDAQ - [x] SETS - [ ] NYSE - [ ] AIM > **Explanation:** SETS (Stock Exchange Electronic Trading Service) replaced SEAQ for trading FTSE 250 stocks, offering a more advanced and automated trading process. ### What type of securities are now primarily recorded on SEAQ? - [ ] Government bonds - [ ] FTSE 100 stocks - [ ] High-frequency traded stocks - [x] Alternative Investment Market securities > **Explanation:** SEAQ primarily records prices for securities listed on the Alternative Investment Market (AIM) since most of the FTSE 250 and higher liquidity stocks are traded via SETS. ### Why did the London Stock Exchange introduce SETS? - [ ] To attract global investments - [ ] To speculate on stock prices - [x] To handle high liquidity and larger-volume trades efficiently - [ ] To focus on commodities trading > **Explanation:** SETS was introduced to efficiently manage the higher liquidity and larger trading volumes of FTSE 250 and FTSE 100 stocks, enhancing electronic order processing. ### Can retail investors trade directly through SEAQ? - [ ] Yes, all investors can trade directly. - [ ] Only institutional investors have access. - [x] No, but they benefit from the transparency. - [ ] Yes, but only for FTSE 250 stocks. > **Explanation:** Retail investors cannot directly trade through SEAQ but benefit from the market maker's price transparency information available through SEAQ. ### When was SEAQ introduced on the London Stock Exchange? - [ ] 1999 - [ ] 1972 - [x] 1986 - [ ] 2005 > **Explanation:** SEAQ was introduced in 1986 to enhance market transparency and efficiency in the London Stock Exchange through market maker quotes. ### What role do market makers play in SEAQ? - [ ] They speculate on stock prices. - [ ] They handle corporate announcements. - [ ] They directly manage retail trades. - [x] They provide continuous bid and ask prices. > **Explanation:** Market makers provide continuous bid and ask prices to ensure liquidity and price transparency in the SEAQ system. ### What type of market is the AIM? - [ ] A futures market - [ ] A government bond market - [ ] A commodities market - [x] A market for smaller and growing companies > **Explanation:** The AIM is a sub-market of the London Stock Exchange designed for smaller, growing companies to access public equity. ### Why is SEAQ still important despite advancements like SETS? - [ ] It handles global trades. - [x] It provides price transparency for less liquid stocks. - [ ] It focuses on large-cap securities. - [ ] It facilitates high-frequency trading. > **Explanation:** SEAQ remains important because it provides price transparency for less liquid stocks, such as those listed on the AIM, with market maker quotations. ### Which of the following systems is used for high liquidity stocks on the LSE? - [x] SETS - [ ] SEAQ - [ ] NASDAQ - [ ] FTSE AIM > **Explanation:** SETS is the system used for handling high liquidity and volume trades, particularly for FTSE 100 and 250 stocks on the London Stock Exchange.

Thank you for engaging with our comprehensive accounting lexicon and quiz questions. We hope these resources enhance your knowledge of the financial world!