SEAQ

SEAQ (Stock Exchange Automated Quotation system) is a screen-based trading system introduced by the London Stock Exchange (LSE) in 1986. Think of it as the digital revolution that kicked the old, crowded trading floor into the history books. Launched as a cornerstone of the UK's financial deregulation, famously known as the Big Bang, SEAQ transformed London's stock market from a closed club into a competitive, electronic arena. It operates as a quote-driven system. This means that instead of buyers and sellers placing orders and waiting for a match, a group of dedicated firms, called market makers, constantly display the prices at which they are willing to buy (bid price) and sell (ask price) a particular stock. This provides continuous liquidity and a clear view of the market. For the first time, investors could see competing quotes on a screen, which increased transparency and drove down the costs of trading.

Before SEAQ, buying a share on the LSE was a bit like an old-fashioned auction. You'd have your broker, who would go to a “jobber” on the physical trading floor to get a price. It was inefficient, opaque, and the costs were high. The Big Bang and SEAQ swept all that away.

• From Floor to Screen: Trading moved from a noisy, physical floor to quiet computer terminals. This dramatically increased the speed and efficiency of executing trades.
• Competition is King: The old system had a strict separation between brokers (agents for investors) and jobbers (the market makers). SEAQ allowed firms to be both, creating fierce competition. More market makers competing for business meant better prices for investors.
• Lower Costs: This new competition squeezed the bid-ask spread (the difference between the buying and selling price, which is a profit for the market maker). Tighter spreads and lower commissions meant transaction costs plummeted, leaving more of the returns in the investor's pocket.

For a value investor, the market's mechanism is a tool, not the main event. However, a good tool can make the job much easier. SEAQ and the systems that followed it brought several benefits that align with the value investing philosophy.

• Accessibility: Lower transaction costs make it feasible for ordinary investors to build a diversified portfolio of carefully selected, undervalued companies without having their potential returns eaten up by fees. This democratized the market, putting individuals on a more level playing field with large institutions.
• Transparency: Seeing multiple, competing quotes from market makers gives you a real-time snapshot of a stock's liquidity and the immediate cost of entry or exit. This clarity helps in making disciplined, informed decisions—a cornerstone of value investing.
• A Word of Caution: The flip side of efficiency is the temptation for speed. Electronic trading can encourage rapid-fire speculation and chasing market noise. A true value investor resists this urge. They use the system's efficiency not to trade more, but to execute their long-term, well-researched strategy better and more cheaply.

Technology never stands still, and SEAQ is no exception. While it was a revolutionary leap forward, it is no longer the primary platform for trading the UK's biggest and most liquid stocks like those in the FTSE 100 index.

• The Successor: For these top-tier stocks, the LSE now uses the Stock Exchange Electronic Trading Service (SETS). SETS is an order-driven system, which uses a central electronic order book to automatically match buy and sell orders from different participants without the need for a market maker to be in the middle of every trade.
• SEAQ's Current Role: So, is SEAQ just a museum piece? Not at all. It remains a vital part of the market, but its role has shifted. It is now primarily used for trading less liquid securities, including many stocks listed on the Alternative Investment Market (AIM) and certain types of fixed-income securities.
• Paving the Way: SEAQ's ultimate legacy is its role as a trailblazer. It was the critical first step that dragged the London market into the electronic age, setting the stage for the even faster and more integrated global trading systems we rely on today.