Outlook: Exchange still struggling to find a role
Thursday 29 July 1999
WHAT IS to become of the London Stock Exchange? Its once all powerful position has been on the decline ever since Big Bang in the mid-1980s, when the City's doors were opened to foreign controlled outsiders and the old cartel of jobbers and brokers was broken up.
Removal of large chunks of the stock exchange's regulatory responsibilities, plus some high profile cock-ups with technology, has added to the erosion of prestige and standing, and today the exchange is little more than a quite poorly regarded trading system and a more highly respected set of listing requirements.
In a globalising economy, even those positions are under threat. Overseas exchanges offer an increasingly attractive alternative, both to investors and companies wishing to list. The Internet and the growth of rival electronic exchanges pose an even more potent challenge. Traditional national exchanges find themselves under siege as never before.
A whole new line of assault is opened up today with news of a joint venture between Barclays Global Investors and Mercury Asset Management to develop the market in so called "crossing" share transactions. This is a long established and already much used form of trading where brokers and the stock exchange are by passed through direct trading, either institution to institution, or more usually client to client within a fund management group.
Mercury and Barclays plan to develop "crossing" techniques beyond their present bilateral basis into a multilateral system. Trades will continue to be reported to the stock exchange, but in most other respects the stock exchange will not be involved.
By removing the middle man as well as the spread between buy and sell prices, the sponsors anticipate quite considerable cost savings for clients. Traditional agency brokers will be as worried by these developments as the stock exchange, for it plainly obviates their position in stock trading as well.
Combine this revolution in the wholesale market with the impact Internet trading is having among retail investors, and the stock exchange may find itself squeezed out altogether.
Even the purpose of the listing requirements - perhaps the stock exchange's biggest remaining raison d'etre - is open to question in a world where unprofitable internet companies with less than a year's track record to show for their sins are able to command 40 per cent premiums in first dealings.
It's easy to see why Gavin Casey, chief executive of the London Stock Exchange, is so keen to accelerate defensive plans for a pan European stock market. While these talks were confined to a get together with the Deutsche Borse, they seemed credible enough.
Now that they have been extended to embrace other Continental exchanges too, they are a good deal less so. The way things are going, Europe's traditional stock exchanges will all be dead by the time they get through the talking.
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