Confusion over Internet share dealing system

Stock Exchange: how the changing face of the City could threaten 200 years of tradition


Financial Editor

A new era in share dealing is breaking in Britain. But the London Stock Exchange, fearing the first challenges to its monopoly, does not like it one bit.

The start-up today of the first share-dealing service on the Internet, a joint-venture between Electronic Share Information of Cambridge and the discount broker Sharelink, has been thrown into confusion by the sudden decision of the Stock Exchange to go back on an agreement to provide real- time share prices to the new venture. From the end of October, when the current trial period contract expires, the price information feed will cease, apparently out of fears for security on the Internet.

The move betrays a sense of panic, as the Stock Exchange reacts to competition, which will become much more serious on 21 September with the advent of the first rival exchange, Tradepoint. It will introduce to the City the electronic, order-driven dealing system common in most international financial centres, where buy and sell orders are automatically and anonymously matched.

These newcomers are minute compared to the establishment might of the Stock Exchange. Electronic Share Information and Sharelink appeal to private clients; while Tradepoint hopes to capture 2 per cent of the equity market next year. But the Stock Exchange is warning against the fragmentation of the market and the cost perils in this new competition. It fears this is the small beginning of a potentially dramatic development.

There has been a significant shift in the balance of regulatory sentiment, as the OFT and the Securities and Investment Board, the main City watchdog, have called for curbs on the privileges accorded market makers, the powerful member firms of the exchange which drive the market by quoting prices to investors at which they are willing to buy and sell shares. They want to scrap restrictive practices at the exchange, such as not allowing better share prices to be quoted elsewhere.

The changing face of the City has also left the Stock Exchange behind. Big foreign dealing houses now dominate, which are less wedded to the vested interests of the market making tradition. Moreover, with the rise of big integrated investment banks, the nature of trading has changed. Only a few houses are market makers in the old sense of providing a service. Many, taking advantage of Stock Exchange privileges, are essentially making money for their firms as proprietary traders. This perceived abuse of a system that has otherwise served the City well has provided the impetus for demands for greater transparency and competition from the regulators.

The Stock Exchange was ill prepared for the currents turning against it. The big market making firms which dominate its membership have long resisted changes to the system which earned them handsome profits. Now the monopoly is cracking, and the exchange is seeking a new agility, placing its activities under thorough review.

There is a widely-shared view within government, the regulators, big institutions and member securities houses that the exchange has lost its way. But this does not imply a switch in support to the alternatives. Some 50 clients have signed up for Tradepoint's start, but many more institutions are waiting to see whether it really will cut London's uncompetitively high dealing costs. But there is also concern about where these changes might lead the City. It will be the first major centre with exchanges competing for the same stocks. Market making margins are already squeezed; if Tradepoint undercuts them much further, firms could pull out, reducing the liquidity that has been a main attraction of the London market.

But the Stock Exchange is not taking chances. It is speeding up the introduction of its new Sequence system which will give it an order-driven dealing capacity by next year.

Teeth should be brushed twice a day to prevent tooth decay
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League - but Mourinho is short of strikers
Those who were encouraged to walk in a happy manner remembered less negative words
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
Renee Zellweger as Bridget Jones
ebooksAn unforgettable anthology of contemporary reportage
Life and Style

Board creates magnetic field to achieve lift

There have been various incidents of social media users inadvertently flouting the law

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
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

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London