Guide to Analysing Companies

S
282
STOCK
03 Essential Finance 10/11/06 2:22 PM Page 282

---

communicating via a computer screen and a telephone. Ex-
changes themselves are also investing increasing amounts in
technology that allows them to display prices and match bar-
gains not just across borders but in a variety of derivatives as
well as in plain vanilla securities. Indeed, most ex-
changes are owned by companies that are themselves quoted
on an exchange; exchanges therefore have their own share-
holders to satisfy.
Stock Exchange Automated Quotations
Introduced by the london stock exchange in 1986, seaq,
as it is commonly known, is a trading system that carries the
market makers’ bid and offer quotations for UK securi-
ties. Members of the exchange not only have access to a con-
tinuously updated database of prices and volumes; they are
also able to deal in securities via their computer screens. seaq
International is based on the same system and has done much
to reinforce London’s position as the world’s leading centre for
international share trading.
Stock index
A measure of the change in value of a representative group of
stocks. Strictly speaking, an index is an average expressed in
relation to an earlier, established value. Confusingly, some pub-
lished stock averages are actually indices, and vice versa.
Indices can be broadly based (representing an overall market,
like the s&p 500) or they can be narrow (concentrating, for
example, on a particular industry or sector). Stock indices are
used as the base for a variety of derivatives (such as stock
index futures, index options and options on index
futures). Most such products are used to hedge an investor’s
exposure to movements in a particular market or as a way of
spreading risk.