Share trading switch given OK

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The Independent Online
The Stock Exchange has received the go-ahead for a revolution in the way equities are traded in London. Preliminary assessment of a consultation exercise by the Exchange over the last five weeks suggests significant support for some form of automatic order-driven trading system to replace the traditional mechanism of market-makers quoting buy and sell prices.

But sources conceded that the introduction of the new system would be delayed well beyond the originally intended date of 27 August, when the Stock Exchange starts up the final phase of its Sequence VI modernisation programme. Market practitioners want more time to work out the information technology adjustments for the new system, which is not expected to get under way until the summer of 1997.

The consultation exercise produced a huge variety of opinions from 160 brokers, institutional investors and big corporates on what form of trading system they wanted. Some questioned why there should be any change to the status quo. But the Stock Exchange remains confident that "no change" is not a serious option and that the introduction of an order-matching system will go ahead.

The Exchange plans a further round of consultation to establish the complex details of how the system should operate. It will also seek to establish more precisely the methods and timing of implementation.

An order-driven system, common in most other international financial centres, automatically matches buy and sell orders on the screen, without the need for intermediaries. The initial prospect of a revolutionary Big Bang-type switch provoked heated controversy, and was one of the reasons behind the ousting of Michael Lawrence, the Exchange's chief executive. There is now increasing evidence of compromise.

A likely option is the introduction of an order-driven system in FT-SE 100 stocks which limits orders to a relatively small size, combined with a bloc trading mechanism which would allow market makers to carry on dominating large trades. The size of the order book could then be progressively increased over time.