It is easy to buy and sell shares. This section describes briefly how the exchange works and what happens from the buy or sell order to a concluded transaction.

The main task of the exchange

The exchange is a marketplace for trading in shares. It aims to maintain an effective market that inspires confidence, and places heavy demands on the various participants. The listed companies are required to provide the market with information regarding decisions and events that can have an impact on the market price. Everyone has access to the same information simultaneously, which contributes to stable trading and market transparency.

Trading in shares is governed by well-established rules which describe how trading should be conducted, what is allowed and what is not. The exchange requires that everyone trading on the exchange should have good knowledge of applicable law, corporate finance and economics. In addition, the exchange has an organization for the supervision of trading.

Who may trade?

All trading on the exchange takes is conducted between members of the exchange. The members consist of banks and securities companies, which have a permit from the supervisory authority of the residing country to conduct securities transactions and, moreover, comply with the exchange’s membership requirements. Today, the Nordic Exchange has approximately 150 trading members with a combined total of approximately 1200 authorized brokers accessing the marketplace. Both large investors and small savers must go through one of members in order to buy or sell shares on the exchange.

The SAXESS trading system

The trading in shares is completely automated, with trading conducted via direct connections between the member computer terminals and the exchange’s central electronic trading system SAXESS. The broker sitting at his or her workstation can see exactly what is happening at all times on the electronic marketplace, which orders other member companies are putting in and those that result in concluded transactions.

From order to concluded transaction

To buy or sell shares, you have to go through an exchange member. A series of events follow before the transaction is concluded and the contract note is in hand. When you give, for example, the local bank branch office a buy or sell order, the order initially goes via the bank’s internal system to the headquarters. Subsequently, a broker puts the order into SAXESS. Certain member firms offer their customers the possibility of making their buy or sell orders via internet. The order then goes further via the member firm to SAXESS.

How long the order stays in SAXESS depends on whether there is a corresponding order in the order book with which to conclude a transaction. The order book is where the shares are traded, where the buyer and seller are brought together and the share transaction is executed. For a transaction to occur, it is necessary to have at least one buyer and one seller that agree on a price. The market prices are continually changing in SAXESS. If a buyer is prepared to pay a higher price or a seller is prepared to accept a lower price, a change in the market price is reflected in the order book.

When the transaction is concluded in the exchange’s trading system, information is sent via the member firm to the local securities custodian (in Sweden and Finland to NCSD; in Denmark to VP ) where the transaction is executed. This means that the shares are de-registered from the seller’s account and registered in the buyer’s VP account. Settlement occurs simultaneously via the buyer and seller banks. The transaction is not concluded until this has been done. For more information regarding the execution process, contact your member firm or local securities custodian.

SAXESS

In SAXESS, all orders are handled in the same way, based on certain premises. The orders are sorted according to price and time. The highest bid and lowest ask price end up at the top of the order book. If the price is the same for several orders, they are sorted by the point of time that they were registered in the system.

Even before the opening of the market, the broker can put orders into the trading system. They can only see the orders that they themselves or their brokerages have put in. This is called "hidden opening process."

The business day opens and closes by means of an auction process. The aim is to find the price level for every share where most transactions can be made. The auction process in the morning starts for all shares at the same time. During the entire business day, brokers can continuously put orders into the trading system.

In the opening and closing process, a complete appraisal is made of the total order quantity for each class of shares. The opening price is set at the price where most shares can be matched as transactions. Then an allotment, calculated as a percentage, takes place between parties.

One hour after the opening of the market, when most of the share price levels are expected to have stabilized, trading begins in the small order market and then continues during the rest of the trading day.

To attach conditions to an order

Share prices on the exchange change all the time. The price that applies when the order is given to the bank can have changed by the time the order is put into SAXESS. As such, there is no guarantee that you will be able to buy or sell at a specific price. However, it is possible to attach a condition to the order.

Best possible: This condition is used for small orders. Buying or selling takes place at the price paid on the market at that moment. If the price paid changes before the order is concluded as a transaction, then the order automatically follows to the new price paid. The condition ”best possible" does not mean that the transaction is concluded at the best price on a given day, rather at the price paid at the moment when the transaction is effected. For orders in the round lot market, a price must always be specified.

Price limits: This condition means that you specify the highest buy price or the lowest sell price that you are prepared to accept. Consequently, you guarantee a specific bid or ask price, but there is no guarantee that the order will result in a concluded transaction. If, for example, you are prepared to buy a share at a price-limited price but there is no seller at that price, then the transaction will not be carried out.

Time limits: Normally an order in the round lot market is automatically removed from the order books after the close of the trading day, while orders in the small order market remain in the order books until the next trading day. The trading system, however, allows you to specify how long the order will be valid for (eight days at most) by providing the orders with dates and possible times.

Price information

While trading is in progress, information on orders and concluded transactions is updated in the trading system as soon as changes occur on the market. Brokers can follow every change in the order books from their terminals at the moment they take place, i.e. in real-time. Furthermore, brokers have access to other information systems that provide them with news and information on share, credit, currency and derivative markets.

Even without access to real-time information, it is possible to stay up-to-date with exchange developments. Information services geared towards the public are becoming more widespread. Today, there are a number of channels that offer free price information, although it is not real-time. On our website, for example, 15-minute delayed price information is continuously updated.

Terms that are good to know

Spread: The difference between the highest bid and lowest ask price is called the spread or price interval. The spread can thus be described as the difference in price that exists between the buyer and seller.

Liquidity: Liquidity is a measurement of how much a share is traded. Shares that are traded frequently have high liquidity. The spread is often small in shares with high liquidity, and it is easy to find buyers and sellers. Sometimes, there might be a low number of transactions per day in certain shares – i.e. liquidity is low. This can lead to a situation where a share has a certain bid price on one day and on the next day it cannot be sold anywhere close to this price because there is no buyer.

Bid price and ask price: In newspapers and on the internet, the share reports show bid and ask prices. On any given trading day, the bid price is the highest price that someone is prepared to pay for a share; the ask price is the lowest price that someone is prepared to sell the share for. After the close of the trading day, the bid price is referred to as the days’ final and is the highest bid on the buy side; the sell price shows the days’ final and is the lowest bid on the sell side. When you are thinking of buying shares, the ask prices will tell you what you must be prepared to pay for the shares. Conversely, you look at the bid prices when you are thinking of selling. Always keep in mind that prices can change before the order results in a concluded transaction.