Depository (BSD), a fully electronic clearing, settlement and depository service.

William Woods, chief executive of the BSX, said the new system was part of a natural progression in updating Bermuda's market.

Speaking to a group of executives from BSX-listed companies he said: "This is the final jigsaw piece in full automation of the Bermuda capital markets.

"It began in 1998 with BEST, our fully electronic trading system.

"Trades happen at nanosecond technology speed, but settlement of the trades has been a slow process.'' The new system will vastly reduce the amount of paperwork everyone involved in the settlement side has to deal with.

Mr. Woods explained the new system is closely linked to their electronic trading system and the two systems were designed and built together.

"The system is based on how the world's largest markets operate and is designed fully in accordance with international industry standards,'' he said.

The BSD is a fully owned subsidiary of the BSX and is controlled and regulated by it.

The use of central securities depository organisations and shorter settlement cycles has been universally accepted as critical in the reduction of settlement and transaction risk.

They also make the operation of securities markets more efficient.

In the same way that electronic banking reduces the need for physical currency, BSD replaces physical share certificates with electronic entries in investor accounts within BSD.

Stock will be held in electronic form in a central nominee at the BSD, which will be the legal owner of the shares.

Trades will pass automatically from the electronic trading system to the BSD, of which brokers, custodians, institutions and foreign depositories can be members.

The BSD will automatically check the trades have been made on a valid account and that there are sufficient stocks and funds.

The BSD will deduct stock from the seller's account and add to the buyer's account by book entry transfer.

Issuers of stock can have details of trades immediately or as frequently as they designate either through a direct dial up link to a computer workstation in their office, or in printed, e-mail or diskette form.

As a BSD account cannot be lost, destroyed or stolen the BSX said that investments will be more secure.

And buying and selling will be quicker and cheaper with the removal of paperwork.

Mr. Woods said that most of the savings will be with brokers who can do away with their back-end processing.

He added: "We want to ensure brokers pass that saving on to investors.'' Valerie McFarlane, the independent consultant who has installed the system, said the BSD should be very beneficial for active investors.

"There will be a book entry transfer system that avoids the need for the movement of paper to settle a trade and there can only be delivery of good stock.

"There will also be a faster turn-round of stock as the account update takes place on the settlement due date.'' She believes this system provides a platform for future growth and expansion of the Bermuda market.

It is a volume insensitive system, the cost and time involved for ten trades being the same for 1,000 trades.

See Page 18 for a profile of Valerie McFarlane.