Exchange seeks ITG aid after all

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The Independent Online

The London Stock Exchange, which on Friday saw off the hostile bid from OM Gruppen, is looking for help to improve the erratic performance of its end-of-day auctions.

The London Stock Exchange, which on Friday saw off the hostile bid from OM Gruppen, is looking for help to improve the erratic performance of its end-of-day auctions.

ITG Europe, which transacts £800m of shares a day in a matching system similar to the auctions, has offered its expertise to help improve the auctions. Although a previous approach was rebuffed, the LSE is understood to be considering a fresh offer by ITG.

The LSE's willingness to countenance assistance reflects the continuing difficulties experienced in the closing-day fairs, which are used in particular by tracker fund managers needing to alter their portfolios to reflect changes in the weightings of stocks.

The most glaring failure came in September when Dimension Data, the South African software company, was due to enter the FT-SE 100 index. The necessity for tracker fund managers to buy Dimension stocks in an end-of- day auction saw millions of shares change hands at prices almost 50 per cent higher than that night's close. Between them, the funds are understood to have overpaid for the Dimension shares by as much as £60m.

Other end-of-day auctions, which began in May, have been characterised by similarly extreme price movements. The LSE has been in consultation with members to discuss ways of improving the system.

ITG Europe - a joint venture between ITG, the American broker, and Société Générale, the French bank - allows customers to place anonymous orders which are fulfilled in thrice-daily auctions. It differs from the LSE's auctions insofar as ITG Europe's customers do not specify the price at which they wish to transact. Instead, buyers and sellers are matched and a price agreed according to the prevailing level of the market at the time.

The anonymity of ITG Europe's "crossing network" enables customers to complete their transactions without their intentions being divulged to the rest of the market, hence minimising the impact their orders will have on share prices. The success of the system, which is known as Posit, has attracted the custom of the majority of the City's most active stock market investors. ITG Europe takes a small cut from each transaction. It also operates the service in Germany, France, Italy, Spain, the Netherlands and Belgium.

ITG Europe is run by Alisdair Haynes, a former head of derivative sales at HSBC and UBS, who has also been linked with the vacant post of chief executive of the LSE.

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