The Stock Exchange has bowed to pressure for greater dealing competition in London by lifting a key part of its old monopoly - the ban on its members quoting competitive prices on rival exchanges. The change is an important victory for Tradepoint, which recently became the first serious challenger to the Exchange with the introduction of an electronic, order-driven dealing system.
The Exchange's rule change, effective from Monday follows hard upon its humiliating climbdown in its dispute with another small rival, Sharelink, the private client stockbroker, which is offering a dealing service on the Internet with Electronic Share Information.
Having declared it was reneging on an agreement to provide the new service with up-to-the-minute share prices, the Stock Exchange, facing widespread condemnation of what were seen to be bullying tactics against competitors, conceded the arrangements would be respected. The ability of market makers, the big firms that drive share trading in London by offering firm buy and sell prices, to quote their best possible prices on any exchange removes a key obstacle to the development of Tradepoint.
Initially, the Exchange had fought to keep the so-called "best price" rule 4.18, which obliged market makers to reserve their most competitive deals for the Stock Exchange.
"Our Rulebook was, however, written when there was only one recognised market for trading UK equities," said Michael Lawrence, the chief executive. "With the change in market structure we are amending our rules to remove any regulatory obstacle to member firms displaying prices, not only on other recognised investment exchanges, but also on other regulated systems such as Internet."
Michael Waller-Bridge, chief executive of Tradepoint, said: "We welcome the announcement, which removes any potential confusion over regulatory overlap."
Along with the removal of the best-price restriction, another rule change will make clear that bargains made through Tradepoint are subject to Tradepoint rules and not to the Exchange's. This means member firms will not have to report these bargains to the Exchange.
The Stock Exchange, in its earlier attempts to warn potential users off the new competition, said that dealing on Tradepoint would be more expensive. The change to rule 4.18, allowing freedom of price-setting, removes what would have been a built-in price-disadvantage for Tradepoint. Mr Waller- Bridge expressed the hope that Tradepoint, with its automatic system of matching buy and sell orders, will be able to lure business away from the Stock Exchange by charging lower commissions.
Kenneth Clarke, the Chancellor of the Exchequer, said:"I warmly welcome the changes that the Stock Exchange has announced today to its rules which will enable new trading systems and exchanges to compete in London on a level playing field."
The Exchange said it will monitor closely the impact of these rule changes on its price formation process and will review matters once the rule has been in force for a period of three months.