share purchase/sale

share purchase/sale

1. the buyer/seller can approach a STOCKBROKER or COMMERCIAL BANK and instruct them to buy or sell a specific number of shares in a particular company The stockbroker or bank will then undertake this task for a commission (a minimum fixed amount or a percentage of the value of the transaction);
2. the stockbroker or bank approaches a MARKET MAKER (formerly called a ‘jobber’) to buy or sell the shares as instructed. The market maker holds a stock of shares and other financial securities in a limited range of companies determined by the market maker's speciality. The market maker will quote two prices to the stockbroker or bank, a lower ‘bid’ price at which the market maker is prepared to buy shares, and a higher ‘offer’ price at which he is prepared to sell the shares. The difference or ‘spread’ between these prices provides the market maker's profit margin. In quoting two prices the market maker does not know whether the stock-broker intends to buy or sell shares and the stockbroker will only disclose whether he wishes to buy or sell and conclude the transaction if he finds the market maker's prices competitive with those being quoted by other market makers. At this stage a ‘bargain’ is struck and legal title to the shares passes to the buyer. In contrast to the above ‘quote-driven exchanges, ‘order-driven exchanges (such as used by Tradepoint (see STOCK MARKET) involve clients posting their own buy/sell instructions.
3. Trading in the stock market takes place within a ‘rolling settlement’ system (see ACCOUNT PERIOD) in which settlement for purchases and sales takes place five working days after a deal has been struck.
4. In order to record the transfer of ownership of the shares to the buyer, the market maker will notify the COMPANY REGISTRAR of the company whose shares have been bought, who will amend his share register and issue a new share certificate to the buyer and cancel share certificates held by the seller. See TALISMAN, CREST.

INSTITUTIONAL INVESTORS such as pension funds follow a broadly similar procedure in transacting shares, though they often bypass stockbrokers and sometimes market makers, buying and selling large volumes of securities direct between themselves. See SPECULATION.

share purchase/sale

Second, the stockbroker or bank approaches a MARKET MAKER to buy or sell the shares as instructed. The market maker holds a stock of shares in a limited range of companies determined by the market maker's speciality. The market maker cites two prices to the stockbroker or bank: a lower ‘bid’ price at which the market maker is prepared to buy shares, and a higher ‘offer’ price at which he is prepared to sell the shares. The difference, or ‘spread’, between these prices provides the market maker's profit margin. In citing two prices, the market maker does not know whether the stockbroker intends to buy or sell shares, and the stockbroker will only disclose whether he wishes to buy or sell and conclude the transaction if he finds the market maker's prices competitive with those being quoted by other market makers. At this stage a ‘bargain’ is struck and legal title to the shares passes to the buyer.

Finally, the recording of the transfer of ownership of the shares to the buyer can be done either manually through the paper-based Talisman system (involving the issue of new share certificates) or electronically through the Crest system. See COMPANY REGISTRAR, SHARE REGISTER.