`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.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
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

Guru Careers: Financial Controller

£45 - £55k DOE: Guru Careers: A Financial Controller is required to join a suc...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£12500 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Recruitment Genius: Sales Adviser - OTE £24,500

£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...

Recruitment Genius: Business Development Executive / Sales - OTE £40,000

£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...

Day In a Page

Mullah Omar, creator of the Taliban, is dead... for the fourth time

Mullah Omar, creator of the Taliban, is dead... again

I was once told that intelligence services declare their enemies dead to provoke them into popping up their heads and revealing their location, says Robert Fisk
Margaret Attwood on climate change: 'Time is running out for our fragile, Goldilocks planet'

Margaret Attwood on climate change

The author looks back on what she wrote about oil in 2009, and reflects on how the conversation has changed in a mere six years
New Dr Seuss manuscript discovered: What Pet Should I Get? goes on sale this week

New Dr Seuss manuscript discovered

What Pet Should I Get? goes on sale this week
Oculus Rift and the lonely cartoon hedgehog who could become the first ever virtual reality movie star

The cartoon hedgehog leading the way into a whole new reality

Virtual reality is the 'next chapter' of entertainment. Tim Walker gives it a try
Ants have unique ability to switch between individual and collective action, says study

Secrets of ants' teamwork revealed

The insects have an almost unique ability to switch between individual and collective action
Donovan interview: The singer is releasing a greatest hits album to mark his 50th year in folk

Donovan marks his 50th year in folk

The singer tells Nick Duerden about receiving death threats, why the world is 'mentally ill', and how he can write a song about anything, from ecology to crumpets
Let's Race simulator: Ultra-realistic technology recreates thrill of the Formula One circuit

Simulator recreates thrill of F1 circuit

Rory Buckeridge gets behind the wheel and explains how it works
Twitter accused of 'Facebookisation' over plans to overhaul reverse-chronological timeline

Twitter accused of 'Facebookisation'

Facebook exasperates its users by deciding which posts they can and can’t see. So why has Twitter announced plans to do the same?
Jane Birkin asks Hermès to rename bag - but what else could the fashion house call it?

Jane Birkin asks Hermès to rename bag

The star was shocked by a Peta investigation into the exotic skins trade
10 best waterproof mascaras

Whatever the weather: 10 best waterproof mascaras

We found lash-enhancing beauties that won’t budge no matter what you throw at them
Diego Costa biography: Chelsea striker's route to the top - from those who shared his journey

Diego Costa: I go to war. You come with me...

Chelsea's rampaging striker had to fight his way from a poor city in Brazil to life at the top of the Premier League. A new book speaks to those who shared his journey
Ashes 2015: England show the mettle to strike back hard in third Test

England show the mettle to strike back hard in third Test

The biggest problem facing them in Birmingham was the recovery of the zeitgeist that drained so quickly under the weight of Australian runs at Lord's, says Kevin Garside
Women's Open 2015: Charley Hull - 'I know I'm a good golfer but I'm also just a person'

Charley Hull: 'I know I'm a good golfer but I'm also just a person'

British teen keeps her feet on ground ahead of Women's Open
Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

Our choice is years of Tory rule under Corbyn or a return to a Labour government

Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'