In screen-based trading, the computer in the broker’s office is constantly matching the orders at the ________.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → best bid and offer price
Option (1) highest price bid by any buyer — Incorrect. Selling shares to the highest bidder belonged to the old open outcry system. There, brokers shouted prices on the floor of the exchange.
Option (2) price shown on the order confirmation slip — Incorrect. The order confirmation slip only tells the investor that the order has been placed. The matching of orders comes later, on the computer.
Option (3) best bid and offer price — Correct. Buyers and sellers feed their orders and prices into the computer. It keeps matching them at the best bid and offer price, that is, the best price a buyer offers and the best price a seller asks. Orders not matched stay on the screen for later in the day.
Option (4) price agreed in the broker-client agreement — Incorrect. This agreement is signed before any order is placed. It sets up the investor’s link with the broker and fixes no price for a deal.
NCERT (Pre-rationalised Edition): “TRADING AND SETTLEMENT PROCEDURE … There was a time when in the open outcry system, securities were bought and sold on the floor of the stock exchange. Under this auction system, deals were struck among brokers, prices were shouted out and the shares sold to the highest bidder. …” “TRADING AND SETTLEMENT PROCEDURE … Every broker has to have access to a computer terminal that is connected to the main stock exchange. In this screen-based trading, a member logs on to the site and any information about the shares (company, member, etc.) he wishes to buy or sell and the price is fed into the computer. The software is so designed that the transaction will be executed when a matching order is found from a counter party. The whole transaction is carried on the computer screen with both the parties being able to see the prices of all shares going up and down at all times during the time that business is transacted and during business hours of the stock exchange. The computer in the brokers office is constantly matching the orders at the best bid and offer price. Those that are not matched remain on the screen and are open for future matching during the day. …” |