Comment: Stock Exchange's veil rent asunder

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The Independent Online
Stock Exchange's veil rent asunder

Tired old institutions can only fend off criticism with the claim that they are busily engaged in a grand strategy review for so long. The London Stock Exchange has been grandly reviewing for as long as most people care to remember. The promised outcome, however, slips and slides with the passing seasons, and the mutterings of discontent grow louder.

Yesterday, they broke with a roar. Rudolf Mueller, head of the Union Bank of Switzerland's operations in London, finally went public on what he has been saying privately for a long time - that the Stock Exchange has condemned itself to the increasingly diminishing role of a local trading emporium.

In doing so he has done more than raise the temperature of debate over the Stock Exchange's future. As a former member of the Stock Exchange council he has delivered a devastating blow to the already battered prestige of a once-proud, landmark institution in the City. Now it is just proud, and that is the nub of the problem.

It is fitting, given the changing face of the City, that it should have been the representative of a powerful foreign firm who finally rent the veil of public reserve. Mr Mueller is in fact only voicing what a great number of those with an interest in the City - Stock Exchange member firms, government officials, ministers and regulators - have been discreetly saying for ages. This is, that times have moved on, the City has been transformed, and the Stock Exchange has lamentably failed to keep up.

When the City was a gentlemen's club, and merchant bankers and stockbrokers did their business wearing Union Jack boxer shorts, the London Stock Exchange occupied a commanding position of authority and respect. It was one of the most powerful and prestigious trade associations in the country.

But the City is no longer that British; it is the world's pre-eminent international financial centre, where big foreign firms increasingly call the tune. That is its strength, but it is one from which the exchange has failed to draw sustenance. It has become increasingly hard to make the trade association function efficiently.

Instead, the impression is of an institution that is drifting without a clear sense of purpose. The view has been reinforced by a series of unseemly rows, provoked by the Stock Exchange, with fledgling rivals such as Tradepoint and ESI/Sharelink. The exchange's response has smacked of an abuse of regulatory power for its own ailing competitive advantage.

The most common criticism is that while the City has reinforced its position as Europe's financial capital, the London Stock Exchange has fluffed the chance to take the lead in forging an alliance of European exchanges. Instead, it saw no reason why it should share a cake it considered largely its own. The result is that it is now forced to watch helplessly as increasingly large slices of international equity business are won back by the rival continental exchanges.

Seaq International, the exchange's facility for international share dealing, flourished while places like Paris and Frankfurt languished in the dark ages. The rivals are much more efficient operations now. From 1 January, when an EU directive permits "remote" dealing on European exchanges from just one, home, base, Seaq International is likely to see a further haemorrhage of foreign business.

The blame for this paralysis should not be put on Michael Lawrence, the Stock Exhange's chief executive, or its chairman, John Kemp-Welch. By all accounts, both find it hard to move forward an organisation debilitated by in-fighting.

But to persist on this defensive, introspective course is fatal. If it has a vision of the future, the Stock Exchange should tell us about it.