City fury as Littlechild review turns to chaos

The Stock Exchange yesterday began an investigation as Professor Stephen Littlechild, the electricity industry regulator, said he had evidence that details of his report on a new pricing regime were known to the financial markets before publication.

He said: "If it had been simply speculation it may have been a different matter. We have evidence that the numbers in this report were available to some people in the marketplace."

Earlier in the day the Stock Exchange advised Professor Littlechild to bring forward the offical anouncement of his new pricing regime as detailed information about its contents appeared to leak into the financial markets.

During the morning, shares in the electricity sector rose sharply on rumours that the regulator's price controls would be more lenient than had been expected.

This prompted Professor Littlechild's department, Offer, to contact the Stock Exchange for advice and by mid-afternoon he took the decision - on the exchange's advice - to make an announcement of his intentions for the sector there and then, instead of waiting for the scheduled announcement first thing this morning.

Details of the share price movements ahead of the announcement were sent to the Stock Exchange's surveillance unit. The events of the day brought sharp criticism from analysts and investors in the City, who were furious about the way that Professor Littlechild had handled the announcement.

"Clearly the suspicion is that some people had the information before others and that is not the way that stock markets are supposed to work," said Philip Hollobone, the electricity analyst at stockbrokers Williams de Broe.

A spokesman for one of the twelve regional electricity companies said it had received a copy of Offer's report at 8.30am. It was later seen by other directors. He said the company' s stockbrokers were supposed to be briefed after stock market hours along with the company's financial public relations advisers.

One merchant banker, who declined to be named, said: "In the end the whole thing was a farce. If he didn't think word would get out during the day, Mr Littlechild must be living in a dream-world."

City sources said that Offer contacted the Stock Exchange twice; the first time because it was worried by the frantic, mainly upward movement in share prices of the electricity companies and the second time because it felt that the rumours about the new pricing regime were close to the truth.

Earlier in the day, according to analysts, Offer had denied that it was considering moving the announcement forward.

Professor Littlechild, as well as other utility regulators, has been at the centre of controversy before in the City about the way in which price sensitive information has been disclosed.

In March this year there was chaos when a letter he wrote to the electricity companies saying that the existing price regime was too lenient effectively wiped 25 per cent off the value of the regional electricity companies - just after the deadline for investors to subscribe to the share issues of PowerGen and National Power.

Comment, page 23.

"In the end the whole thing was a farce. Mr Littlechild's total naivety about the market place is staggering"

A regional electricity company official

"The suspicion is that some people had the information before others. That is not how stock markets are supposed to work"

Philip Hollobone, Williams de Broe

"We have evidence that the numbers in this report were available to some people in the financial markets"

Professor Stephen Littlechild

"It should not be in the Recs' interest to leak anything. We are very security-conscious"

Henry Casley, chief executive Southern Electric

"We don't regulate the regulators, we regulate the companies"

The Stock Exchange