The London Stock Exchange is proposing a two-tier market to its member firms, using the new technology available to it next year as a method of competing with rival share dealing systems. The offer follows the Exchange’s embarrassing climb-down when it was lambasted by officials for obstructing Tradepoint Financial Networks Plc and Electronic Share Information Ltd’s on-line dealing ventures launched in August and September respectively. The proposal is a charm offensive to combat damaging publicity after the Exchange was publicly reprimanded by the Securities & Investments Board, Chancellor of the Exchequer Kenneth Clarke and the Office of Fair Trading. Both Tradepoint and Electronic Share offer cheap methods of dealing across the Internet, and although they have been attracting only a handful of bargains each day, the number is growing and the Exchange views them as a genuine threat. The Exchange has been meeting many of its 360 member firms, telling them its new Sequence share dealing programme to introduce a new trading system has the flexibility effectively to create two markets if they are wanted. Under one suggested system, smaller blocks of shares could be traded on an order-matching basis, in which orders to buy and sell shares at set prices are fed into a central computer which links them and completes the bargain. Larger, institutional share trades could continue to be dealt with by the existing quote-driven system run by market makers. The order-matching system would enable small share trades to be dealt with far more cheaply than at present because the matching would be instant and automatic provided there is a buyer and a seller, removing the need for a market maker as intermediary. Next year the Exchange is expected to consult its members further to discover what type of trading system they would prefer. Due to its fragile public image, the exchange is not trying to impose the system but is instead trying to woo back the confidence of its members by saying that such options are available to them if they are wanted. The old Seaq and Seaq International trading systems were extremely rigid, and making even small changes could cost millions of pounds in reprogramming. SEATS Plus, the new trading system that the Sequence project is introducing, is far more flexible. Next August, Seaq will be switched off and all trading will move to the new system, which already handles all bargains on the Alternative Investment Market. The Exchange feels the City has underestimated the scale of the changes it is pushing through. The Sequence programme is the biggest shake-up in the Exchange’s systems since Big Bang in 1986. To date, all its phases have been delivered on time and on budget. This new spirit of co-operation at the Exchange comes in response to the arrival of serious competition to its long-held monopoly on share trading.
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