Bankcrupt Mantra of the Stock Exchange

Article excerpt

Byline: ALEX BRUMMER

WHY is it not the least bit surprising that the London Stock Exchange (LSE) has again shown the most incredible ineptitude?

A systems meltdown for any key marketplace is a disaster in terms of efficiency, reputation and future revenue and income prospects.

But when that meltdown takes place at a time of extraordinary market vulnerability as a result of the shakeout of new economy stocks, and on the last day of the tax year, it goes beyond that.

What makes matters even worse is that while stockbrokers representing private investors sat on the sidelines twiddling their thumbs during the midweek market failure, the professionals with access to Tradepoint, the wholesale market used by an increasing number of large institutions, were able to deal.

The LSE and technology have

never been comfortable bedfellows.

The exchange has lagged behind in developing robust trading and settlements systems.

And despite all the hype around the launch of the Techmark, the exaggerated claims made for the Alternative Investment Market (AIM) and the arrival of some of the technology, media and tele-coms stocks in the FTSE 100, other markets specialising in technology shares, such as the Neuer Markt in Frankfurt and New York's Nasdaq, have been streets ahead in recognising the significance of the cyber economy and meeting the challenge.

Focus for a moment on the LSE's own record with technology. It has a history as laced with failure as Lloyd's of London prior to its refurbishment under the care of Sir David Rowland and Ron Sandler.

Early last decade, it got itself into serious difficulties under former chief executive Peter Rawlins when it sought to build an electronic trading system, Taurus, that would incorporate faster settlement.

Suffice to say the LSE spent more than [pounds sterling]100 million of members' cash and came up with a dud. Rawlins was fired and with the much-derided Paris and Frankfurt markets offering much faster settlement systems, the Bank of England was forced to step in and save the LSE from itself with the development of Crest.

This all-singing, all-dancing system offers investors both paper and electronic settlement, but also happens to be more expensive to operate than its Continental counterparts.

But never mind, this is rip-off Britain.

DESPITE this setback, the LSE insisted for much of the Nineties in persisting with a quote-driven system for setting share values under which the market makers, the successors to the stock jobbers, decided on the price rather than the volume of orders. …