Settlement role splits exchange: Some members prefer Bank of England to run Crest system

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The Independent Online
THE LONDON Stock Exchange board faces a damaging split over the future of share settlement in London, with some members wanting the exchange to reclaim a leading role while others prefer to leave the area to the Bank of England and key stock market players.

The debate will be one of the key problems facing the new chief executive of the Stock Exchange, who is expected to be named shortly. It is understood a figure from outside the exchange has accepted the post and the announcement could be made on Thursday.

The new chief executive will replace Peter Rawlings, who resigned when the exchange was forced to scrap its own computerised share settlement system, Taurus, which was supposed to take paper out of the system. The fiasco cost the City at least pounds 300m and development of a replacement system, Crest, was handed to the Bank of England.

Now leading members of the exchange council would like to reclaim a leading role in Crest despite their humiliation over Taurus.

Others are satisified with the new minimalist role of the exchange, which has seen it farm out the provision of information. The exchange's Topic system is about to be replaced by two systems developed and run by Telekurs and ICV.

The minimalists do not want the exchange to have anything more than a 'participation' in Crest when it comes on-stream.

One of the 'minimalists' is Rudi Mueller, chairman and chief executive of UBS in the UK and a member of the Stock Exchange board, who was also a member of the Bank of England's now disbanded settlement task force set up immediately after the Taurus debacle.

As far as developing Crest is concerned, Mr Mueller is 'very, very much in favour of the Bank of England, not the Stock Exchange. I've always been a critic of the system in London,' he says.

Mr Mueller wants the exchange to confine itself to questions such as the efficiency of capital markets and supervision rather than settlement or information distribution.

He says the exchange does have an important role in preparing its existing system, Talisman, for the move to 10-day rolling settlement due next July, the further move to five-day rolling settlement in 1995 and then the switch to Crest.

Mr Mueller likes the US approach where leading market players and stock registrars run settlement jointly. The exchange, he says, should have 'a participation'.

The exchange's public position, as outlined by Martin Hall, head of public policy and external relations, is that 'definitely we want a role in settlement'.

Mr Hall says that the board has not yet discussed the subject with members. 'We don't see the London Stock Exchange as back in a dominant supply position,' he says. 'We have an open mind on the operating, financing and management of the system.'

But Mr Hall hopes that the exchange's expertise in running Talisman - which, 'although old, is still running quite well' - should allow it to be involved in owning and running Crest along with other partners in the capital markets.

The Bank of England working group on Crest, headed by Pen Kent, is collecting opinions from all parts of the market on the new system. The Bank is about to distribute a consultative document expected to 'cause quite a stir'.

But the Bank is reluctant to be involved in building Crest, designing its software, running it or owning it. Its role is rather that of an honest broker preventing a recurrence of the political squabbles that handicapped the Taurus project.

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