Business Outlook: Blatant abuse is just the tip of the problem

ORDER-DRIVEN TRADING, the coal industry and zeneca's problems

Experience with the stock exchange's new order driven trading system seems to be going from bad to worse. To begin with, the system seemed open merely to ridicule; now it appears to be open to manipulation and abuse too.

Since the launch of Sets on 20 October, the stock market has been notably more volatile. In part, that is down to more pronounced worldwide volatility in equity markets. However, in Britain the new system has greatly enhanced the problem, creating some local difficulties all of our own.

At first it appeared that the effect of this was just to confuse. Oh, and, of course, to disadvantage the poor old retail investor, but whoever cared about him? This nonetheless might be seen as bad enough. Prices have been yo-yoing about all over the place, and even for big institutional investors, it has become increasingly hard to know what the going price is or ought to be. Now we have growing evidence of much worse - abuse of the system.

Precisely what happened last Friday when the price of some leading pharmaceutical stocks was driven down at the end of the day will have to await the judgement of regulators. However, the suspicion must be that there was a deliberate attempt to influence the closing level of the FTSE 100 index, probably for the purpose of bolstering a separate hedging futures contract. Whatever the details of this particular case, the point is that the new system makes it generally easier to indulge in questionable practice of this type.

The great bulk of orders tend to get withdrawn towards the end of the day, because with increased volatility in world markets, nobody likes to leave them on the system over night, lest they get disadvantaged the next morning. That makes it easy to drive through bargains towards the end of play at silly prices; there's no one around to trade at a more sensible level. The silly price thus becomes the one that gets used to calculate the closing FTSE index.

This type of obvious abuse is only the devious tip of a much wider problem, however. Agency brokers claim that the system is generally open to manipulation by the big market makers, who place and withdraw orders to suit their own books. As a result, only 40 per cent of trades in FTSE 100 stocks are through the new system. The rest go through the old quote driven system. Unfortunately, the old system has ceased to work as it once did, since market makers are no longer obliged to deal at the quoted price, if indeed they are quoting one at all. The market makers have, as a consequence, never had it so good. The rest of us have rarely had it so bad.

At this stage it is not entirely clear what the stock exchange can do about all this. It is no longer possible to pass off these difficulties as mere teething problems. So much has been invested in the new system in terms of ego and money, that abandoning the new and going back to the old would no longer seem an option. It must be possible to make the new system work better than it has, but it is clear the Exchange will have to go much further than the little bit of tweaking here and there it has attempted so far. One thing is certain. Whatever happens, the small retail investor will as always be the loser.

Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Rhys Williams
commonwealth games
Life and Style
People may feel that they're procrastinating by watching TV in the evening
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Life and Style
The veteran poverty campaigner Sir Bob Geldof issues a stark challenge to emerging economies at the Melbourne HIV/Aids conference
Arts and Entertainment
Benedict Cumberbatch and John Malkovich talk Penguins of Madagascar at Comic-Con
comic-con 2014Cumberbatch fans banned from asking about Sherlock at Comic-Con
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
filmGuardians Of The Galaxy should have taken itself a bit more seriously, writes Geoffrey Macnab
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Graduate Recruitment Resourcers - Banking Technologies

£18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform