In the light of the Taurus debacle, doubts were also raised about the Exchange's competence on the trading side of the market, which could undermine its plans for new technology-based developments in share dealing. Such a setback would help the development of competing trading systems such as Tradepoint and whittle down the market's role in the City.
It emerged that some of the City's biggest merchant banks and securities houses have refused to back plans to invest as much as pounds 70m in the modernisation of the Seaq trading system because of lack of confidence in the Exchange's management abilities.
Senior City figures privately made this clear even before they knew Taurus would have to be cancelled. Their reasons for refusing capital contradicted the argument of top officials at the Exchange, who claimed that member firms were refusing to face up to the need to modernise Seaq.
The Stock Exchange says an upgraded system is essential to plans to split the market into a European wholesale dealing system, including big British companies, and a national market embracing medium and small companies.
But the most immediate threat to the Exchange's activities remained the settlement side and the question of what replaces Taurus.
The Royal Bank of Scotland confirmed that it had invited 30 banks and investing institutions to a meeting next Tuesday at its City offices to look at ideas for a rapid, cost-effective replacement. The proposals that emerged would be put to the Bank of England committee on a Taurus replacement.
Terry Pearson, head of global custody at Royal Bank and chairman of a British Bankers Association committee on the subject, said he favoured a collectively owned clearing house for all institutional business, which represented 80 per cent of the value of deals on the Exchange.
There would be a second-tier arrangement for small shareholders that would continue to be based on paper systems. 'Let's try to devise a system where the private shareholders are left out. It would please them and cut the complications,' Mr Pearson said.
Institutional deals were the ones at risk from settlement delays and defaults, he said. If they could be settled in a secure environment 'then that could perhaps be quite a cheap exercise and fairly simple to establish'.
Many of the proposals emerging in the City are based on the Depositary Trust Corporation in New York, where share certificates are kept in a central registry and changes of ownership are recorded on a book entry transfer system on a computer.
But similar systems have been put forward by banks in the debate over Taurus and rejected by the Exchange and the banks. Brian Simpson, who ran Barings' registrar subsidiary until it was sold to Barclays Bank, said one reason why a clearing house proposal failed in 1989 was that the banks would not invest in it.
The widespread pressure to move quickly to a clearing house was questioned by John Gubert, manager of group securities services at HSBC, who said it might be better to move first to a rolling settlement period using the existing paper-based system.
Sir Andrew Hugh Smith, the Stock Exchange chairman, yesterday lunched with a top headhunting firm, which he briefed to look for a 'consolidator not a shaker- up' as the new chief executive to replace Peter Rawlins.Reuse content