`End Exchange's share trading monopoly'

The Office of Fair Trading has called for an end to the Stock Exchange's virtual monopoly on share trading. Abolishing the Stock Exchange rule that prevents professional market-makers from quoting better prices on other systems would open the way for competitor markets to develop, the OFT said in a report to Kenneth Clarke, Chancellor of the Exchequer.

"If the obligation on market-makers to display their best prices on the Stock Exchange Automated Quotation system is removed this should increase the potential for exchanges to compete, and for the market to determine the future development of each system," said Sir Bryan Carsberg, Director General of Fair Trading.

The report also condemned the exclusive access of market-makers to the best share prices which are only displayed on the inter-dealer broker network. This is significantly anti-competitive, and should be opened up to all market participants, the OFT argued.

The report is part of a broader look by the OFT, along with a separate investigation by the Securities and Investment Board, into the workings of the financial markets and how London's competitive position as an international centre can best be improved. The SIB will present its review in the late spring, and it will then be up to the Chancellor to recommend reforms.

Sir Bryan's attack yesterday went to the heart of the current debate in London over the respective merits of a "quote-driven" dealing system, such as the one the Stock Exchange operates, and the "order-driven" system common in most other financial centres.

In a quote-driven system, market-makers are the principal actors, quoting the prices to investors at which they are willing to buy and sell shares. An order-driven system is more mechanical, matching anonymous buy and sell requests between customers. This places much less emphasis on skilled traders responding to the nuances of the markets, but only works properly when there are people wanting to buy and sell a particular stock.

A quote-driven system always functions and is immediate, because market- makers have to make markets. An order-riven system tends to be cheaper in terms of dealing costs. By breaking the rule reserving best share prices for the Stock Exchange, the OFT wants investors to have a choice of dealing systems, and let the market decide which should prevail.

"It is not my role to advocate either system, but I am concerned that the development of order-driven markets in London should not be artificially inhibited by rules which limit the business they can attract," Sir Bryan said.

Many large foreign institutions find the peculiarities of the London system difficult, and want to be able to choose how to deal. At present, only Instinet offers an order-driven system within the Stock Exchange's rules. Another small organisation, Tradepoint, has applied to be a rival order-driven exchange. "If it makes a go of it, we could see other organisations moving rapidly to do the same thing," an OFT official said.

PROMOTED VIDEO
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

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

Day In a Page

Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

Robert Fisk on Syria air strikes

‘Peace President’ Obama had to take stronger action against Isis after beheadings
Will Lindsay Lohan's West End debut be a turnaround moment for her career?

Lindsay Lohan's West End debut

Will this be a turnaround moment for her career?
'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

The follow-up to 'The Tiger Who Came to Tea'

Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

BBC Television Centre

A nostalgic wander through the sets, studios and ghosts of programmes past
Lonesome George: Custody battle in Galapagos over tortoise remains

My George!

Custody battle in Galapagos over tortoise remains
10 best rucksacks for backpackers

Pack up your troubles: 10 best rucksacks for backpackers

Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world