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Traders Magazine, November 2004

Editorial Staff

London *The London Stock Exchange hopes to trade more small-caps electronically. In a controversial proposal, the LSE wants to add about 425 thinly-traded stocks to its hybrid SETSmm platform. It already trades about 220 names on the year-old SETSmm, a system that combines an electronic book with market making. The bourse claims the move will lead to tighter spreads and increased volumes. Dealers, who now trade the stocks manually via the SEAQ system, have opposed the move. They contend liquidity will suffer. The LSE argues the move is in line with a Europe-wide plan to require dealers to display unexecuted limit orders. Under the LSE's proposal, the number of stocks traded over SEAQ will drop from 1,581 to 1,154. SEAQ and SETSmm are two of the LSE's four trading platforms. The other two are SETS, which handles the 180 largest stocks, and SEATS+, which has 52 small-caps. All told, the four systems handle 2,036 names.

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