Outlook: The rip-off of the innocents
Thursday 20 August 1998
This particular problem, where the seller lays a trap and a broker with orders to buy at best price comes along and falls into it, is as much the fault of the broker as the system. The broker has a duty to his client to spot the trap and avoid it. But it is also indicative of a wider malaise - a system that seems not only to be wide open to abuse and manipulation but also generally fails to serve the needs of investors.
The stock exchange's inability to get to grips with these problems is becoming nothing short of a national disgrace. In the early months it was reasonable to blame it all on teething problems, but the time for that has long since past. The recent package of reforms, including setting the trading day back half an hour and the synchronisation of trading hours with those of Liffe, seems not to have improved things one jot.
Quite apart from the constant appearance of these rogue prices - and their tendency to penalise those least able to look after themselves, small retail investors - there is a much wider problem with SETs. This is that it is not much used by big institutional investors. Only 30 per cent of trade is passing through the new system with the rest conducted either off market completely or through the old quote driven system. Since there is no longer obligation or transparency in the old system, it means that jobbers are making money out of it as never before. Investors know this, but they still seem to prefer being taken for a ride under the old to the vagaries of the new.
The solution to these problems is still far from clear. Certainly it would not seem practical now to abandon the new system, on which a large sum of money has been invested, and return whole heartedly to the old. That in any case is not what institutional investors want. It was they who led the fight against powerful vested interest for a modern order driven system.
Lamentably, we seem to have ended up with the worst of both worlds. Just to repeat the statement, solutions are not easy to find. It is, however, the stock exchange's job to ensure an orderly and efficient market place, and if Gavin Casey, the present chief executive, can't find a way through, he should move over and let someone else have a go.
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