Origin of Term: London Stock Exchange
Like contango, the term originated in mid-19th century England, originating from "backward".
In that era on the London Stock Exchange, backwardation was a fee paid by a seller wishing to defer delivering stock they had sold. This fee was paid either to the buyer, or to a third party who lent stock to the seller.
The purpose was normally speculative, allowing short selling. Settlement days were on a fixed schedule (such as fortnightly) and a short seller did not have to deliver stock until the following settlement day, and on that day could "carry over" their position to the next by paying a backwardation fee. This practice was common before 1930, but came to be used less and less, particularly since options were reintroduced in 1958.
The fee here did not indicate a near-term shortage of stock the way backwardation means today, it was more like a "lease rate", the cost of borrowing a stock or commodity for a period of time.
In more recent years, a backwardation in equities quoted on the London Stock Exchange has come to signify the unusual occurrence of an individual equities quote whereby the bid appears to be higher than the offer. This (of course) cannot occur for electronically traded stocks via SETS or SETS MM but only for quote-driven stocks (SEAQ)
Read more about this topic: Normal Backwardation
Famous quotes containing the words origin of, origin, london, stock and/or exchange:
“The real, then, is that which, sooner or later, information and reasoning would finally result in, and which is therefore independent of the vagaries of me and you. Thus, the very origin of the conception of reality shows that this conception essentially involves the notion of a COMMUNITY, without definite limits, and capable of a definite increase of knowledge.”
—Charles Sanders Peirce (1839–1914)
“The real, then, is that which, sooner or later, information and reasoning would finally result in, and which is therefore independent of the vagaries of me and you. Thus, the very origin of the conception of reality shows that this conception essentially involves the notion of a COMMUNITY, without definite limits, and capable of a definite increase of knowledge.”
—Charles Sanders Peirce (1839–1914)
“I suggested a doubt, that if I were to reside in London, the exquisite zest with which I relished it in occasional visits might go off, and I might grow tired of it. JOHNSON. “ ... No, Sir, when a man is tired of London, he is tired of life; for there is in London all that life can afford.””
—Samuel Johnson (1709–1784)
“And anyone is free to condemn me to death
If he leaves it to nature to carry out the sentence.
I shall will to the common stock of air my breath
And pay a death tax of fairly polite repentance.”
—Robert Frost (1874–1963)
“... the subjective viewpoint is the only one to use regarding a library. Your true library is a collection of the books you want. You may have deplorably poor taste or bad judgment. Never mind. Correct those traits before you exchange your books.”
—Carolyn Wells (1862–1942)