Despite a massive investment in information technology, including seven fibre-optic cable networks, the City does not have any single, comprehensive system on which it can do business. Instead, it sports dozens of incompatible, and often competing, systems. What it needs to compete in the next century, argues Hugh Morris, an IT expert at Andersen Consulting, is a comprehensive way of gathering information, agreeing to deals and settling the transactions that is flexible enough to handle everything from shares through bonds to foreign exchange transactions - a sort of Internet for the City.
"You'll only really get costs out of the City when you centralise," argues Mr Morris, who has been touting the idea to dozens of institutions. Dealing rooms typically have connections to about 15 different networks, each costing about pounds 500,000 a year. In theory, consolidating them all into one common network would save up to pounds 2.5bn a year.
It would also entrench London at the centre of world finance. Unlike New York and Tokyo - which are dominated by domestic dealing - the City relies heavily on foreign trades. None of the competing financial centres has a centralised computer network, so building one in London would be a way of gaining a competitive edge.
Michael Cassidy, the policy and resources committee chairman at the Corporation of London, the City's local government, says enthusiasm for the concept is growing. "Many of the elements are already in place," he says. "It's just not on a City-wide basis." The corporation is thinking of applying to the European Union to fund an IT exhibition in the City next autumn which would showcase the idea of an integrated IT network, along with other possible innovations.
At the heart of such a system would be a common protocol, allowing formal messages to be sent easily from one institution to another, and a tight security system to protect against fraud. Mr Morris argues that in order to be successful it would have to be flexible enough to handle complicated financial instruments such as derivatives (options to buy and sell at a future date for a set price) as well as more ordinary share and bond deals.
Among the steps that have already been taken is Crest, the new equities settlement system, which will be used formally to transfer the ownership of share certificates after brokers have agreed to buy and sell them on behalf of their clients. The system is being set up by the Bank of England to replace the failed Taurus system that the London Stock Exchange tried to establish. The exchange, meanwhile, is busy with Sequence, a six-part system to handle the front end of the business where bids and offers are made and accepted. It is expected to be up and running by next August, replacing the outdated Seaq system.
Integrating all the different networks could be harder than the enthusiasts think, however. Critics note that its institutions are wary of sharing any technology that gives them an edge and terrified that confidential information might be stolen. There are also potential regulatory problems, as the watchdogs for different parts of the financial industry fight to maintain firewalls between different types of business and to ensure their own control over activities. "There are just too many vested interests," says the deputy chairman of on leading institution.Reuse content