and DAVID HELLIER
Five powerful City figures gave the Stock Exchange chairman John Kemp- Welch an ultimatum last month: sack Michael Lawrence as chief executive or take the consequences yourself.
The threat was made less than three weeks ago by a two-man team - known as the Rockley-Owen delegation. Lord Rockley is group chairman of Kleinwort Benson and Dr Martin Owen is chief executive of NatWest Markets.
The two said they were representing the views of a number of key City figures, including Nicholas Redmayne at Kleinwort Benson, Scott Dobbie of NatWest Securities, Andrew Buxton of Barclays Bank and Michael Marks of Merrill Lynch.
They saw Mr Kemp-Welch just before Christmas and told him that the current state of affairs could not continue. They told him that they were being advised by others and that there had to be a change in the "due process and consultation" of the Exchange.
Mr Kemp-Welch was unavailable for comment and Lord Rockley could not be contacted.
The confrontation escalated the battle between the City's old guard and Mr Lawrence, an outsider, which exploded on Thursday when the Stock Exchange ousted Mr Lawrence as chief executive.
As the smoke cleared last night names of a successor were already being mentioned. Giles Vardey, the 39-year-old director of markets, development and marketing and chairman of the influential markets committee, was being tipped as a possible internal candidate. Mr Vardey was formerly managing director of Swiss Bank Corporation.
Mr Lawrence's departure plunged the Stock Exchange into a fresh crisis.
Politicians from all the main parties yesterday called for an urgent inquiry into the dismissal.
Malcolm Bruce, the Liberal Democrat Treasury spokesman, said: ''The move clearly gives the impression of vested interests resisting change when change is necessary.'' Mr Bruce said the Stock Exchange board should not be free to take decisions that could be of huge importance to the City and the economy without being accountable to Parliament.
He found cross-party support among other committee members. Barry Legg, Conservative MP for Milton Keynes SW, said: ''When an organisation loses two chief executives, it suggests something is wrong with the organisation, not the individuals. Personality differences can usually be reconciled.''
Clive Betts, a Labour member, said: ''I want to be assured that we do not have people in charge of the Stock Exchange who are resistant to changes that are important for its future and the future of the City.'' He agreed that there seemed to be City vested interests trying to block essential reforms.
In the City it emerged that Mr Lawrence was sacked because he was costing practitioners too much money. While the brokers and big investment banks were not prepared to comment publicly on his sudden departure, privately they admitted that his relentless programme of change was threatening their profitability.
"Mr Lawrence was not pig-sticked because the City blue bloods didn't like him,'' insisted one senior broker. "Rather he tried to make too many omelettes and broke one egg too many in the process.''
The decision to press ahead with the introduction of an electronic ''order- matching'' system for share trading - to compete with the traditional ''quote-driven'' system - was the final straw which angered the mighty investment banks. But Mr Lawrence had already ruffled a broader City church with the introduction of "rolling settlement'' and the Alternative Investment Market, both of which hit brokers in their pockets.
In Westminster, MPs were sceptical about the Bank of England's ability to resolve the Exchange's problems. Mr Legg said: ''I am not sure the Bank of England will be forward-looking enough on this issue.''
Mr Bruce said: ''The Bank has not exactly covered itself in glory recently.''
However, Alistair Darling, the Labour Party's City spokesman, said yesterday: ''For its own survival the Stock Exchange needs to unite quickly around a strategy. It may be that the Bank of England should use its influence and knock some heads together.''
The Bank of England sees itself as a troubleshooter, helping a prominent City institution overcome a specific problem. Although it took responsibility for Crest, the new share settlement system, after the collapse of the Exchange's Taurus project, muscling in on the Exchange's core functions is not on its agenda. Ian Plenderleith, the Bank of England executive director who has joined the Stock Exchange board as deputy chairman, is likely to see his top priority as restoring members' confidence in the Exchange after this latest debacle.
The Bank of England Govenor, Eddie George, said: "What is important is that people should be persuaded that the Stock Exchange has confronted clearly a problem and is going to address it in a constructive way."
Another priority is to move forward quickly with Sequence, the new trading system whose steering committee was appointed yesterday.
The Exchange hopes to introduce Sequence, in August this year.
Developed at a cost of pounds 47m it will replace Seaq, the system that launched the Big Bang in 1986.
It is designed to cater for any type of trading, including the order- driven system used on Wall Street and on the Continental bourses.
Lawrence interview, page 3
Comment, page 19