Trading on SASE is performed electronically, without a physical presence of brokers on the exchange. Brokers are connected to the BTS (the SASE trading system) via their workstations. Trading can only be conducted by a member of Sarajevo Stock Exchange.

The Exchange market model for stock trading in the BTS is order-driven. Essential to that concept is the order book. It can be illustrated as a table with all the buy orders on the left side, and all the sell orders on the right side. BTS has an order book for every symbol that is traded on the exchange.

The 'price-time priority' is used for ranking the orders, which imply that the buy orders with higher price and the sell orders with lower price have the priority. If two orders have the same price, the priority is given to the order which was entered into the system earlier.

In this example, order 'A' has priority over order 'B' because of its higher price. On the sell side, order 'F' has priority over order 'G' because of its lower price. Orders 'B' and 'C' have the same price, order 'B' has the priority due to a smaller time stamp.

The trading modes / trading algorithms

There are two trading algorithms (modes) on SASE – auction and continuous (MFTS - Multi-Fixing Time Schedule). MFTS is used on:

• Official Market: Official Market of companies, Market of investment funds, Market of bonds and Market of other securities
• Free Market: Free Market of companies – subsegments ST1 and ST2, Market of bonds and Market of other securities

Auction trading mode, with one or more daily auctions, is used on Free Market of companies – subsegment ST3 and and the subsegment for issuers in bankruptcy proceedings.

Auction trading

Low liquidity shares are traded through auction trading mode. All orders are gathered in the order book up to certain moment – auction time. Orders are not executed before even when the prices match. This algorithm provides the market with higher level of information (in the market microtheory, every order – its price and value – is the market information).

Basic goal of this order concentration is to minimize information asimmetry (the difference in investor awareness), which can be very big for low liquidity shares.

The other characteristic of auction trading is the fact that all transactions are concluded with a single price. Auction price is assigned by BTS as the one through which the most shares are traded, which does not necesarilly have to be highest or the lowest possible.

Continuous mode (MFTS)

In this mode trades are being executed as soon as price is matching, so one security can have multiple prices during one trading day. The official daily average price is the weighted mean of prices of all trades, weighted in relation to volume. The issuers from the Official Market and the Primary Free Market are being traded with MFTS.

Cross-trades (meaning trades concluded by matching orders coming from the same brokerage house) are not taken into account when calculating the official price of a security, except when cross trades are the only trades with the security on a given day.

Orders on SASE

Investors at the Sarajevo Stock Exchange can issue orders with the following constraints:

• a) Price Constraints
• Market orders - unlimited bid/ask orders; they are to be executed at the next price determined
• Limit orders - are bid/ask orders; they are to be executed at their specified limit or better
• Limit orders with discretion - as with limit orders, the client specifies a limit price. However, the broker has the right to enter the clients' order at a better price - a maximum of 20% is possible.

• b) Validity Constraints
• Open orders - valid until it is executed on the market or removed by the member who entered it. An open order is valid up to 180 calendar days from the date of entry.
• Daily orders - valid for a particular trading day
• Valid till date - valid from the moment of entry, until it is executed on the market or until the specified date.

• c) Added terms of showing and execution
  • Order with range - it enables buy/sell at various prices up to the specified limit. It stays in the system if it cannot be filled immediately
  • Hidden volume - the entire volume is not shown on the market. Minimum size of such order is 10.000 KM

• d) Special terms of execution
  • All or none - can only be executed in full quantity
  • Minimum quantity of first trade - first trade must be concluded with a quantity equal or higher than the minimum quantity specified by the member. Minimum quantity must be higher than 1.000 KM
  • Minimum quantity of all trades - every trade must be concluded with quantity equal or higher than the minimum quantity (again, must be higher than 1.000 KM)
  • The members of the exchange are obliged to introduce the clients to orders that are used on SASE. Market order enables the client to 'overtake' all the orders, but it's not recommendable to use with less liquid symbols. Limit order with discretion gives the broker authorization to set the price within the 20% of the limit set by client. It enables broker to react swiftly if the market circumstances change. If client gives an order with hidden volume, his intention is to hide the quantity of the order away from the other market participants. Orders with special terms of execution are used when the client wants to avoid 'splitting' of the order, i.e. he wants the order to be executed within one or two transactions.

Special trading modes

Special auctions

Special auctions are organized for the state, the investment funds and other investors who want to sell blocks of securities. For the other investors there is a limitiation: the volume must amonut to at least 5% of total issued securities.

Stock exchange notifies the market participants and the public of the date of the auction, identity of seller, price and volume. A new symbol is formed for the auction.

There are 3 methods of special auction:

• Method 1 - a one-off auction with only full volume buy orders considered
• Method 2 - a one-off auction with smaller buy orders allowed
• Method 3 - a sale of block of securities with MFTS algorithm

The price of the auction is not considered included in the calculation of official daily average price.

Initial public offers

Public offers of securities can also be held on SASE. Stock exchange is a secondary capital market by definition, but can also provide big advantage when organizing an initial public offer. One brokerage house enters the sell order of the issuer. IPO is being performed by all brokerage houses entering buy orders of their clients. The issuer can choose between two methods: single price method and multiple prices method.

When the single price method is used, the sell order is entered on the first day of the IPO. After that, the buy orders can be entered. Transactions are not concluded until the last day when BTS determines the price of the IPO.

If the multiple price method is used, the first day on the IPO is determined by the issuer. Buy orders are being entered until the last day and the moment when sell order is entered, after which transactions are being concluded under the conditions of buy orders (which, in turn, match the conditions of the IPO).

IPOs being performed through stock exchange can be considered a more up-to-date and transparent modus than the traditional one, where clients have to sign a statement at depository bank's office.

Trading schedule on the Sarajevo Stock Exchange

Trading on SASE takes place from Monday to Friday, from 9:00 to 13:30. The specific trading schedule of a symbol depends on its trading algorithm (see Trading Process):