Big mistakes that upset all sides at the Exchange

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The Independent Online
Michael Lawrence never was a popular man at the Stock Exchange. Almost from the day he joined two years ago, he began to upset people. He was an outsider in a hurry, determined to revolutionise an ancient institution, slay sacred cows, and find a new role for the Exchange in a fast-changing world. If toes needed to be trodden on, so be it. As if that were not bad enough for the City old guard, an abrasive and aggressive style compounded the impression among traditionalists of a charmless, jumped-up little meddler.

It wasn't just that he didn't fit, however. The Stock Exchange is a broad church. By the end he had managed to alienate virtually all its constituents in one way or another. The politician's art, it is often said, is to be all things to all men. Mr Lawrence's penchant was the very antithesis; he managed to act against one faction after another, crucially, right at the end, against the big batallions of the Stock Exchange, the all- powerful market making firms.

With so many commercial interests jostling for position, the chief executive's post may always have been an impossible one. His predecessor, unceremoniously ousted in the same way, certainly found it so. The Stock Exchange is more akin to a utility than a company, trying to serve members with widely different needs and priorities.

But Mr Lawrence seems to have made it doubly worse through words and actions that at best looked out of place and at worst heaped ridicule both on his organisation and his office. His position cannot have been helped by a board which while publicly supporting his actions, whispered cruelly behind his back about what a disastrous appointment he was. John Kemp-Welch, a brilliant senior partner while at Cazenove, proved spineless as Stock Exchange chairman, failing to grip the situation before it got out of hand. By the end, all he could do was protest vainly in the face of overwelming pressure from his members for Mr Lawrence to go.

Mr Lawrence's first big mistake, apart, that is, from failing to turn up to the Stock Exchange annual meeting and a similar no-show at Sir Andrew Hugh Smith's leaving do, was to anger that vociferous minority, the private client broking firms. All he did seemed designed to back the interests of big institutions against those of the private investor.

Then he upset the increasingly powerful foreign newcomers to London. Rudi Mueller, chairman of UBS, resigned from the board saying first privately then publicly that he had lost all faith in the Stock Exchange and what it was trying to do. Mr Lawrence's failure to grasp the opportunity of forming a federal structure with other European bourses - preferring instead, in true Brit style to believe that the Exchange could continue to dominate European equity trading on its own - was perhaps one of his biggest failings.

As the farce gathered pace, Mr Lawrence chose first to deprive another Stock Exchange exile, David Jones of ShareLink, of a price feed, then when Mr Jones accused him of behaving like a monopolist, he ridiculously threatened to sue for defamation. Finally he caved in and gave ShareLink all it asked for. Oh, and then there was the Bank of England, which Mr Lawrence managed to fall out with over Crest, the automated settlement system. All this he might just about have survived but then he did something really stupid. In his search for a populist cause, he decided to take on the market-makers.

There were two prongs to this admirable but foolhardy course of action. The first was to suggest that as a way of plugging the revenue gap that would be left by the demise of the Talisman settlement system, the Stock Exchange should go into competition with its own members on services such as inter-dealer broking.

Now there have always been two approaches to management, both of them with merit; to consult or not to consult. By chosing the latter route in an organisation which is still more akin to a club than a company, Mr Lawrence buried all hope of survival.

The second leg of the attack on the big league firms was then unveiled - the rapid introduction of an order-driven trading system alongside the present quote-driven one. Mr Lawrence was in effect reading his own last rites. Ironically, that plan, so damaging to the profits of entrenched market-makers, looks as if it will survive. Whether the Stock Exchange can carry on in its present form, with all the warring factions under one roof, is another matter.

Dollar's blistering pace likely to falter

The dollar has got off to a cracking start in the new year, rising to almost a two-year high against the yen. But there are good grounds to be sceptical about a continuing robust performance throughout 1996 against both the yen and the mark.

Start with the budget deal - if and when it is finally reached. This might give the dollar a further fillip, but the forex markets have long factored an eventual agreement to balance the budget by 2002 into their calculations. In any case, the deal is Augustinian in its approach - make me chaste, but not yet - with the tax cuts front-loaded and the spending reductions back-loaded. If a week is a long time in politics, seven years is the lifetime of a Methusalah in the trigger-happy foreign exchange markets.

The current orthodoxy is that fiscal rectitude and currency strength march hand in hand. This overlooks the fact that the budget deficit is already less as a percentage of GDP in the US than it is in Germany and Japan. The move from a federal deficit of about 2 per cent to balance over seven years is hardly the stuff of seismic changes on the foreign exchanges. The nub of the problem for the dollar is that, for all their riches, Americans save too little; foreigners have had to make up the balance. This has made the US the biggest net debtor country in the world, a dubious achievement all the more striking in that the title has been acquired in just 15 years.

In its December forecast, the Organisation for Economic Co-operation and Development saw little sign of a fundamental improvement in the US trade position. The annual current account deficit was projected to stay at a whopping $150bn - about 2 per cent of GDP - for the next two years.

Without a sustained move into surplus on the current account, last recorded in 1981, it is hard to see how the present upswing in the dollar can be anything other than a cyclical rally. As long as the Bank of Japan continues to prime the world monetary pump, the dollar looks set for further gains against the yen. Even here it is worth noting that a recovery to much above 110 would risk upsetting the trade applecart with the US by giving new impetus to Japanese exports.

Against the mark, the dollar will have to battle with more formidable headwinds. Few would deny that the German mark and the flotilla of linked European currencies are over-valued against the dollar. But as long as uncertainty persists about the fate of EMU, it is difficult to see the mark losing its status as the preferred refuge for investors betting against the Maastricht deadline.

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