The following points highlight the three main types of trading systems in a stock exchange. The systems are: 1. Screen Based Trading System 2. Scripless Trading 3. Demat Trading.
Type # 1. Screen Based Trading System:
The stock exchanges now provide an on-line fully automated ‘screen based trading system (SBTS)’.
The Important Features of SBTS:
1. A member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching order from a counter party.
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2. SBTS electronically matches orders on a strict price/time priority.
3. It cuts down on time, cost and risk of error, as well as fraud resulting in improved operational efficiency.
4. It allows faster incorporation of price sensitive information into prevailing prices, and enables increasing the informational efficiency of markets.
5. It enables market participants to see the full market on real time, making the market transparent.
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6. It allows a large number of participants, irrespective of geographical location, to trade with one another simultaneously, improving the depth and liquidity of the market.
7. It provides full anonymity by accepting orders of small, from members without revealing their identity, thus providing equal access to everybody.
8. It also provides a perfect audit trail, which helps to resolve disputes by logging in the trade execution process in entirety.
Type # 2. Scripless Trading:
1. Scripless trading is a method of securities trading in which the settlement of transactions take place via book entry instead of physical exchange and delivery of securities certificates.
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2. The major objective of introducing scripless trading is to ensure the safety of securities certificates and to improve the liquidity position of the stock markets both in primary and secondary markets.
3. The major advantages of the scripless trading system are as follows:
(i) Reduction in paper work of stock brokers and stock exchanges.
(ii) Ensure safety of certificates from theft, fake certificates, mutilation etc.
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(iii) Reduction in cumbersome share transfer procedures.
(iv) Greater speed in exchange and delivery of securities certificates.
(v) Improves liquidity of both the individual scrips and stock market position.
Type # 3. Demat Trading:
1. In a demat trading, the depositories maintain and transfer ownership records in electronic form for the wide range of corporate securities and money market instruments, in dematerialized form.
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2. The investors are allowed to hold securities either in physical form or demat form.
3. When an investor intend to keep his securities in demat form, he is required to hold the securities in depositories.
4. Now all active securities are traded and settled in demat form. At present, nearly 99% of turnover on stock exchanges are traded and settled in demat form.
5. All new IPOs are required to be traded only in demat form. All stock exchange listed securities are asked to be in demat form. Stamp duty on transfer of demat securities have been abolished.
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6. Demat securities are preferred as collateral in providing security to a debt.
7. The demat trading is made compulsory for money market instruments like government note issuance, treasury bills, etc.