"Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning" Albert Einstein

Back in the day, the UK Stock Market was made up of a series of regional Stock Exchanges. Many in ports like Liverpool, Bristol, and Newcastle with others in historical heartland of industry, Manchester, Birmingham. It was only in the early seventies that all these Exchanges came together to form a single Exchange based in London.

The results of the merged Exchanges was obviously beneficial in a number of ways but not least was the capability of investors throughout the UK and latterly internationally to gain a fairer execution price and with very many cost savings in operations. It in effect opened up the markets from its centuries old structures.

Key to this ability to bring all the Exchanges together was the development of the PABX telephone communications systems that virtually overnight did away with the network of local telephone exchanges throughout the country. This maybe a hard concept for the younger generation, who have been brought up with the joy of mobiles and texting, but something easily remembered by the baby boomer
generation.

This example demonstrates how market changes are often the driving force for change or at the very least, the enabler. Communication is a pillar of efficient markets. Slow or fragmented communication disrupts markets,creating opportunities for fraud, but more generally high costs and operational efficiencies.

The merged exchanges operating under a single brand,' the London Stock Exchange' produced the possibility of centrally clearing and settling bargains from all over the country. The need to build this more efficient settlement structure was obvious but how, was less so.

The start of this central settlement system was to firstly capture the agreed
bargain details between Jobber and Broker and this culminated in the Charm
Checking system previously described in an earlier article. However the next
phase was going to be a more difficult kettle of fish and require Brokers and
Jobbers to invest in changed procedures and in the firms with in-house systems,
some development. For the majority of the stock market that used bureaus, this
also meant change and development and of course increased costs.

The new system was called Bargain Accounting. Bargain accounting described most simply, meant matched bargains entering a central processing system where the various broking and jobbing accounts were updated each day, towards the end of account settlement.

Settlement was on a 2 week basis, with various holidays pushing the timeframe to three weeks. All the bargains were accumulated at the amount or consideration, as it was called, within each broker or jobbing account. All the
purchases were subtracted from all the sales, leaving a balance that the firm
would pay or receive from the Stock Exchange. Stamp Tax was deducted and paid to the Inland Revenue by the firm.

Bargain accounting along with the Charm Checking System combined to form the basis of the Talisman System that would totally revolutionise Stock Exchange settlement and that will be the topic of the next article.