Market-makers accused of plotting Stock Exchange 'coup'
Thursday 29 February 1996
Two of the City's most powerful market-makers, Michael Marks of Merrill Lynch and Donald Brydon of BZW were accused yesterday of mounting a ''classic coup'' to wrest back control over the London Stock Exchange.
Michael Lawrence, who was dramatically sacked by the Exchange in early January, said the market-makers ganged up on him to prevent a professional, powerful exchange emerging.
He told the Treasury and Civil Service Committee that proposed radical reforms to the way shares are trading in London, must go ahead or the Exchange would not surrive. The changes would mean introducing anorder- driven system to replace the traditional mechanism based on the prices quoted by the market-makers.
"I don't think the coup was directed against order matching, but against control, and there was no doubt I was building a management of control. We were building a strong exchange."
Describing himself as a cautious reformer, who for the first time was asking the Exchange's users what they wanted, Mr Lawrence said the real issue upsettng the market makers was control. "We were moving away from the club to a professionally managed business, and that was the problem."
He said: "If I were Merrill Lynch or BZW, running over 30 per cent of the equity market, I would want to protect my patch. Their position was perfectly reasonable, but it does not mean they should be the only voice."
Mr Lawrence, who received a sympathetic hearing from the MPs, said there was broad support in the market for a move to an order-based system, which was common in all other international financial centres. He also had the support of the Treasury and the Bank of England for a consultation process which the Stock Exchange had agreed to conduct.
Despite this favourable market sentiment, Mr Lawrence said the two leading market makers, supported by Nicholas Very of SBC Warburg, moved to get rid of him. "I think events demonstrated that a stock exchange chief executive takes his life in his hands if he stands up to them. Maybe they wished to demonstrate this."
Mr Lawrence claimed the Exchange chairman, John Kemp-Welch had told him: "Every time the market makers take a decision they get it wrong. We must not let them decide this."
Shortly afterwards he fired Mr Lawrence. "He was feeling the pressure," Mr Lawrence said.
If the Exchange remains tied to the quote-driven system Mr Lawrence said, "I don't believe it will survive." He also said it must also move to management by professional executives running the exchange with shareholders and all potential users.
Mr Lawrence was fired in early January on the grounds that he had lost the confidence of the board. Members complained of a lack of consultation, and controversial executive decisions. Mr Lawrence is close to finalising a pay-off believed to be in the region of pounds 600,000 to 700,000.
He described a growing rift, especially with BZW, which "did not like the concept of a full-time executive managment at the Exchange. The board meeting last November which decided to go ahead with the consultation on the order- driven reforms was a watershed.
"Suddenly they woke up to the fact they were dealing with a new exchange and they moved to stop it. The method with which they sought to reassert their control is not perspicacious for the future," he said, adding that the exchange will find it hard to attract a new chief executive.
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