Stock Exchange attacked by rival over `mischief'
Document suggests problems with Tradepoint
Monday 14 August 1995
A consultation document by the Stock Exchange to be issued this week is believed to suggest that dealing on Tradepoint's electronic exchange could involve greater costs for market makers, the big broking firms that commit their own capital to buying and selling large blocks of shares.
The document also raises questions about whether certain traditional privileges for market makers on the LSE will also apply to Tradepoint. The LSE document is believed to highlight worries about the co-existence of competing exchanges dealing in the same shares.
"We just find it a little sad that the Stock Exchange feels they have to go to these lengths to put us down," said Stephen Wilson, an executive director at Tradepoint. "This sort of defensive action is not good for the industry. All we are doing is providing more choice, building the overall market in London."
With just five weeks to the launch of Tradepoint, which introduces for the first time an automated, order-driven dealing system, the Stock Exchange is raising the tone of its warnings that too sharp a shift in regulatory support towards this first challenger to its virtual monopoly could damage London's position as the pre-eminent financial centre in Europe.
The Securities and Investment Board called in late June in its equity market review for changes to the Stock Exchange's rules, which it said get in the way of a competing dealing system developing.
The SIB was following a recommendation from the Office of Fair Trading in March. In particular, the OFT requested changes to the Stock Exchange's rule 4.18, which obliges market makers not to display better prices on rival systems. The OFT report said this rule "restricts and distorts competition to a significant extent".
The consultation document is to be presented today by Michael Lawrence, the Stock Exchange's chief executive, to the rule committee. It is also expected to raise questions about whether market makers will be exempt from stamp duty on the competing exchange, as they are on the LSE.
"Such suggestions are mischievous," Mr Wilson said. "We went through detailed negotiations with the Treasury and the Inland Revenue about this, and market makers will indeed be exempt from stamp duty on Tradepoint."
He dismissed as a red herring Stock Exchange concerns about problems of two exchanges dealing in the same share. "It was after all the LSE itself which set the precedent here, by launching SEAQ International in the mid Eighties to be able to deal in shares listed on Continental exchanges. It is hard to understand what the LSE is getting at; a lot does not make sense."
Tradepoint expects to begin trading next month in 400 of the biggest London shares, having signed up about 50 institutions. A number of these are brokers and market makers who make up the core membership of the London Stock Exchange. Several of Tradepoint's big shareholders are major institutions, including TSB, Framlington and Robeco. The aim of the business is to capture about 2 per cent of the London dealing market by early next year.
While casting doubt on Tradepoint's aspirations, the Stock Exchange has also been speeding up its own plans to introduce an order-driven trading capability. This is now expected to be operational by late next year.
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