EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN BELGIUM

 We talked in a previous article about:

III.OFF-EXCHANGE SEGMENTS OF THE SECONDARY  MARKET IN THE FEDERAL REPUBLIC OF GERMANY

Today we talk about: II.EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN BELGIUM

A characteristic feature of the Brussels and Antwerp exchanges is the calling out of calculated collective prices in order to give all stock exchange members an opportunity to correct these preliminary prices by making additional bids.

The more dealers there are taking part in this process, the more satisfactory - from the market-organization point of view - are the prices.

For that reason the collective prices of the various markets are established consecutively, starting - in the case of Brussels - with the forward market securities at 12.30 p.m., proceeding to the "corbeille" market at 12.50, and the "parquet" market at 1.10.

 Time is provided from 1.30   for daily dealings in unlisted items; auctions in such securities take place once a fortnight in the afternoon. On the other two exchanges, Ghent and Liege, bargains are in general made at the Brussels quotation which is ascertained by telephone or with the help of a stock exchange information service.

In Brussels there are two categories of security from the dealing point of view: securities dealt in purely for cash and securities dealt in partly on a cash basis and partly on the forward market. Turnover in securities dealt in purely for cash is normally small; all orders are concentrated to provide a sufficiently broad basis for determining prices regularly. In the case of other securities activity is sufficient for small orders to be separated from round-lot orders as is done elsewhere. The exchanges attempt to widen the market on which the round-lot orders are executed by organizing it as a forward market. Even investors not intrinsically interested in forward trading tend to use the forward market, provided their orders are large enough, because of the lower rates of commission charged for future-settlement orders. In addition to these orders there are the orders of those investors specifically interested in forward trading. Some idea of the importance of such orders may be gained when one knows that some 35% of forward transactions are prolonged.

1.  The forward market Forward transactions in Belgium are for the middle or end of a month, i.e. there are 24 settlement dates in a year. On account of the larger-than-average size of forward transactions, of the possibility of a substantial build-up of liabilities until settlement day and because of the specific risk of price changes affecting forward positions, particularly onerous requirements must be imposed on those participating  in forward trading. Thus not all "agents de change" in Belgium are authorized to forward dealings but only  "agents" with more than three years' experience as a member of the stock exchange

and with sufficient capital resources; only they may become members of the clearing co-operative and hence authorized to deal on the forward market. At present the co-operative has 175 members.

In principle, the "agents" transmit their future- settlement orders to the stock exchange quotation service before the exchange opens for dealing. For every issue involved, the buying and selling orders are fed into a computer; the computer lists them according to their limit prices and indicates the previous day's price and the price at which the market can be cleared. After 12.15 p.m. the computer prints out this information on a sheet for each security and these sheets serve as the basis for trading. Alternatively the "agents" may hold on to their orders and, if they wish, make bargains among themselves at the opening price, which is not at that stage known The opening price is fixed in collective negotiation under the direction of a quotation  commissioner ("commissaire Aux criees").

The governing body of the stock exchange has appointed about 40 "agents de change" as quotation commissioners, some of whom are themselves members of that body. A commissioner receives neither a share of commission nor any other remuneration for his services. Each of the quotation commissioners calls his securities out consecutively. For every security he first accepts further orders from the assembled dealers.

Often no more orders are forthcoming and in that case he can use the calculated price printed out by the computer. He then declares whether the opening price will be higher or lower than the previous day's close.

From that moment on he accepts only selling orders if he expects a higher price and only buying orders if he expects a lower price. When no more orders are called out to him he determines the price at which supply and demand balance or nearly balance; in the second case the orders to be executed on the larger side are selected according to a random sequence established in advance for each working day by the governing body.

After a collective price for each security has been established as a result of these collective opening negotiations, the "agents" may put forward further orders.

In any case there are usually still some buying and selling orders with limits lower or higher, respectively, than the opening price, which it has therefore not been possible to execute. Orders with limits near to the opening price are written up - with details of the limit and the quantity – underneath the opening price on large boards above the quotation commissioners' posts, so that the next most favourable trading opportunities are clearly visible to everyone.

Newly-received orders are added. This special feature facilitates arbitrage and other immediate sales below the opening price and immediate purchases above the opening price. This procedure makes it plain that large amounts of limited orders on both sides can take the place of a market maker. If individual bargains are now

made,the executed orders are crossed out and the individual prices written up and quoted in the official list in chronological sequence. Individual bargains in premium trading also occur on the forward market and these are also quoted; the number of such trades on any day, if indeed there are any, is small.

The round lot on the forward market is fixed individually for each security at a round figure of units with a total market value of approximately Bfrs.

50.000. The average daily volume of sales in the 90 forward- traded securities is about three times as high in the forward market as in the cash market. As already mentioned, orders for quantities of these securities smaller than a round lot are assigned to spot trading on the "corbeille" market.

Over half the forward-traded titles are foreign stocks; they account for about half of forward sales. jo

2. The cash market Dealings on the cash or spot market, too, are under the direction of a number of quotation commissioners, who establish a collective price for each security through collective negotiation. Here again a  form prepared by the computer  is used by the commissioner, but in this case it does not show buying  and  selling orders but only  the  last quoted price and the price  at which the orders  in hand balance. The following sections focus on the special forms of collective negotiation found on the cash market of the Brussels Bourse. a)  Le marche des corbeilles (the  "corbeille" market) Following the allocation of about 180 new items to the "corbeille" market by the Commission  de la Bourse  in Brussels  in 1976, about  300 titles are now traded on that market, principally  foreign  stocks but also  some 70 Belgian stocks and  a number of convertible bonds.

Orders here are not passed to the quotation service butto a so-called "specialiste". A fairly large number of "agents'" act as  "specialistes". They are not chosen or

appointed to this function but simply  take it up on their own initiative. Their activities, like those of the quotation commissioners, bring them in no extra commission but give them insight into the state of  the market and an obligation  - in the normal course of events to cover excesses of supply or demand  for their own account.

One firm is a "specialiste" in about 120 titles. The  "specialiste" notes on the computer  form the equilibrium price that he has

Calculated and passes it to the appropriate commissioner who then calls out that price.

If further orders are forthcoming at that price, the  "specialiste" may Cover the excess in Turn or May propose a different price and so on until an opening price has been established.

In exceptional cases selling or buying orders may be scaled down. Subsequently, individual prices may be quoted during the whole time the exchange is open.

Certain minimum Quantities are prescribed if there is to be a  quotation: two units of trading in the case of the opening price and one unit for every individual bargain.

If these minimum quantities are not reached, the Quotation committee ("comite de cotation") may nevertheless allow a quotation if there is good cause. These minimum lots

are half the round lots prescribed for the forward market.

Individual bargains generally involve

A "specialiste"; they are much less common than on the forward market. Whereas

on the latter market individual prices arise in more than half of the issues, on the "corbeille" market they are to be found in barely one

tenth of the securities traded.  The maximum price change of a security compared with the previous day's price is 10% on the "corbeille" market.  But this restriction applies only

To securities traded on  the cash market exclusively.

If the Equilibrium price lies outside this margin, only

a bid or an offer will be quoted.

The "specialiste" must undertake to Take or supply, respectively, two units of trading at this price ("cours modifie argent

- CMA"; "cours modifie papier - CMP") until noon

On the following day.

The next day's permitted price change will then be determined on the basis of the  "CMA" or the "CMP",

Although such a quotation is equivalent to a suspension of trading, off-floor transactions are permitted.

b)  The market in domestic governmental bonds

Almost three hundred issues are traded in this segment

of the market. Trading procedures here are laid down

not by the stock exchange but by the Finance Minister.

Market activity is controlled by the State bond council

which is in charge of open market transactions and

price stabilization of governmental bonds. This council

also determines which  "agents de change" shall assemble

orders in such bonds. The council can have the prices

arising from the order situation quoted or can fix

a price by intervention. Only one price per day is quoted

for a given issue.

c)  Le marche du parquet  (the "parquet" market)

All securities which, although they have been admitted

to a stock exchange quotation, are not traded in the

market sectors so far named, belong to the "parquet"

market.

At the present time they number about 200 and

comprise chiefly Belgian stocks and industrial companies'

bonds.

Only one price is quoted here per day, which, as on

the "corbeille" market, is calculated and established in

collective negotiating. The price must be based on sales

of about

Bfrs.

10 000. Day-to-day price changes in this

segment may not exceed 5% for shares, 2% for bonds,

5% for convertible bonds of which the corresponding

Share is quoted on the "parquet" market and 10% for convertible bonds of which the

corresponding share is quoted on the "corbeille" market. For that reasonmerely bid or offer ("CMA", "CMP") are often quoted here.

d) The exchange market for unlisted securities For some securities there is a need for trading even though the issuer has not applied for listing.

The stock exchange commission accepts written applications

By investors through their "agents" for the sale of such securities.

Then, one week before the transactions are scheduled, it publishes a

catalogue giving the number or face value, description and latest price of those securities which it considers suited to sale on the stock exchange.

These securitites Are then auctioned every fortnight

at a special session on one or more afternoons ("ventes publiques").

Beginning January 1977 the auctions will take place weekly.

As before, bonds And stocks will be sold on the first auction of the month while the other sessions will be reserved exclusively for

bonds.

The monthly turnover achieved at the Auctions has been nearly as

great as a day's sales in listed securities.

Often several hundred domestic And foreign issues are offered for sale. "Ventes publiques" also take place, though on a more modest scale, on the other Belgian bourses.

Transactions Of this kind also take placeon a daily basis in about a dozen issues, basically according to the practice of the "parquet" market ("ventes publiques supplementaires").

These securities Are called at 1.30 p.m. Their prices are Published at the end of the official list.