Sluggish start to new era of share dealing

JOHN EISENHAMMER

Financial Editor

The new era in share trading in the City has got off to a sluggish start. Capping a poor fortnight, Tradepoint, the new automatic order-driven exchange, managed just one trade yesterday. The London Stock Exchange registered 27,893.

Domestic market makers appear largely to be adopting a wait-and-watch approach to the newcomer, which anonymously matches buy and sell orders.

Most of the firms using the exchange, which has broken the Stock Exchange's 200 year monopoly by introducing to London the order-driven facility common in most other big financial centres, are believed to be international investors.

A senior fund manager described Tradepoint's start as a "dripping squib". Of the 42 companies signed up, including many of the City's most powerful market makers and a few institutional giants, about 10 are believed to be actively trading.

"The rest are just making sure they are not missing out on anything," said one institution.

"We intend to use Tradepoint reactively, not pro-actively. If it does take off, we can always think again,' said one head of market making. "We'll let it run for six months, watch the volume."

"Let's see what others are doing, not what we can do to make the system a success," said another.

The average daily number of trades on Tradepoint, which began on 21 September, has been around 15. Last Monday the Stock Exchange changed its rules to allow members to quote competitive prices on rival exchanges, lifting the main obstacle to Tradepoint's aim of offering cheaper dealing.

Stephen Wilson, Tradepoint's executive director, said the slow start was expected. "It will take time for liquidity to build, and we are connecting new participants all the time," he said.

The pricing structure of Tradepoint is geared to institutions, and it is essential it wins their custom if it is to meet the target of gaining 2 per cent of the UK equity market next year.

"The average trade size has been institutional, around pounds 100,000, and we have got a lot of institutional orders going through. They are actively participating," said Mr Wilson.

But many market makers see Tradepoint as a competitor. "It gives clients direct access to one another, so it is hardly in our interest," said one. "We risk losing relationships, and the benefits of being able to sell other products. We signed up to monitor the competition, not to use it," said another.

Institutions complained settlement procedures are not straightforward and involve putting up collateral at the London Clearing House.