QS Study

Traditional Approach Procedures for Transaction in Stock Exchange

There are some specific rules and regulations regarding buying and selling of shares, stock, bonds etc in a stock exchange. Though the rules and regulations differ slightly all over the world most of them are almost same.

Traditional Approach

Call-over System: The small size stock exchange where the number of members is small and the amount of transaction is also small uses this system. This is the oldest method of transaction used in stock exchange. In this approach, in a certain place, the authorized person of the stock exchange declares the price of stock and debentures with the concerned name of companies’ quoted price. In the place only the authorized person and the listed jobbers and brokers are present. When the name of a security is mentioned, it is for bid by the presenters. If any willing seller presented there, he offers it to the presenter for open bid. The willing buyer bargains with the seller on a price they agree and security is sold to the buyer by informing and listing to the stock exchange. In all-over approach, the quoted price may be the last price of the previous day or the weighted average price of the day’s transaction. Out of the floor, a transaction may occur but it is required to inform and listing to the authority of the stock exchange. In this approach, the transaction may be in cash or in cheque.

Trading Post System: This is the enlarged form of the call-over system for big stock exchange where the amount of transaction is also high. For big stock exchange, it is complex to maintain the huge amount of transaction. For this reason, in this approach, the floor is divided into many parts and different stocks are sold at different parts. But share and security of one company are sold only on one floor. The other system of the transaction is almost same to the call-over system.

Jobbing System: In London Stock Exchange, transactions are made by the jobbing system. By this, the stock exchange is divided into many parts and the transactions are made through the jobbers. Jobbers and brokers are mainly deal with stock in jobbing system. Brokers are representatives of companies and investors. They work on behalf of them and get the commission. On the other hand, jobbers are independent business people. They trade in their own name independently and make a profit. There are some assistant members; actually, they are not mantes but employees of the member organization. The members employ some authorized clerks and they can enter into the floor and trade on behalf of the investors. In this system, the broker goes to the jobber to know the buying and selling price of the securities. But they do not mention at first whether they buy or sell. By hearing the prices, the broken bargain both for the buying and selling price with the jobbers. If the price is compromised between them, the brokers sell or buy the shares and securities on behalf of the investors. The brokers have the commission on the basis of the amount of price of those securities. The transaction may both in cash or forward. In case of cash, the transactions are made on spot and in case of the forward contract the transaction may be settled within 15 days.

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