The new venture, details of which are to be unveiled today, aims to save institutional investors and their clients the billions of pounds a year that they currently spend on dealing fees and commissions by offering a lower-cost matched bargain system for the members of the network.
Sir Michael, 65, yesterday resigned a directorship of Tradepoint, the rival stock exchange which was recently recapitalised by a group of American investment banks, citing time pressures arising from "an appointment in another business venture" which he was about to take up.
It is believed that Legal & General is among several other institutions who have also indicated a desire to join the new network which will allow big blocks of shares to be traded at the mid market price - in effect cost - eliminating the "spread" - the difference between the price at which market-makers buy and sell stock, which is the main source of their profits on share dealings.
The new venture could deal a serious blow to the large investment banks for whom block trading for the big institutions is a lucrative source of business. It will also inevitably be a big threat to the London Stock Exchange, since the network will provide an alternative source of trading and liquidity for institutions, although the deals will not technically be "off-bourse" since participants will be expected to book the transactions through the Exchange in the normal way.
Sir Michael, who was intimately involved in clearing and settlement matters at the Stock Exchange before going on to become the founding chief executive of Liffe in 1981 is also chairman of the London Clearing House, which handles the clearing and settlement for Liffe. He was also chairman of London Commodity Exchange.
The new venture is modelled on internal arrangements which BGI and other big investment funds use. The so-called "crossing" arrangements allow clients of the same firm who, for their own reasons, want to buy or sell particular blocks of shares to be matched up, enabling them to exchange shares without going through an external stockbroker and incurring dealing fees.
Barclays Global Investors, part of Barclays Bank, is one of the largest money managers in the world. It handled pounds 9bn worth of these trades internally last year.
The venture is just the latest attempt by banks and institutional investors to challenge the Stock Exchange's monopoly of share dealing within the UK.
Although Tradepoint did not achieve its sponsors' initial expectations, it has found new backers in the shape of a consortium involving the leading American investment banks and Instinet, Reuters' share quotation arm, and is now seen in the City as a much more potent threat.
Liffe has also been studying a move into share dealing in an attempt to find new sources of revenue.Reuse content