COMMENT:Another broadside at a cosy City club

The Office of Fair Trading set Big Bang on its way in the early 1980s, and it continues to fire broadsides at the lack of competition in a number of the City's traditional market practices. Yesterday's report on underwriting fees is the latest on the City's capital-raising methods.

The Treasury and the Securities and Investment Board remain committed to removing impediments to innovation and to lowering the costs of doing business in the City. Quite right too:there is no reason why those who use the City should not be able to exercise their consumer muscle as they do in other industries.

Although stopping short of labelling the time-honoured arrangements for underwriting rights issues a cartel, yesterday's OFT report criticises the business for being run like a cosy club. There is no earthly reason, the OFT says, why tradition alone should set a fee for underwriting at a generous 2 per cent, along with a substantial discount on the shares that hardly ever moves out of the 15 to 20 per cent range. Its instincts that this is not quite a free and competitive market are right.

The whole business of raising capital needs to become cheaper, more flexible and more innovative. Although it has decided against a referral to the Monopolies and Mergers Commission, the OFT served notice that it will keep a beady eye on what it called this opaque area of City practice.

The OFT also wants to crack its whip over the privileges of market makers. This can only speed the advent of an order-driven dealing system.

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