STOCK MARKET WEEK : Stock Exchange is tempting fate on the anniversary of the Big Bang
Monday 08 September 1997
On the anniversary of the market's worst meltdown, which wiped billions of pounds from shares and prompted many to worry whether capitalism had been dealt a mortal blow, the Stock Exchange is tempting fate by introducing order-driven trading, as opposed to quote-driven, for the 100 blue chips making up Footsie.
The constituents of the supporting FTSE 250 index will quickly be dragooned into the new style of trading, which represents a victory for the big American investment houses over what is left of the City old guard.
It is predicted that chaos will greet the arrival of the new order. To get dealers up and running weekend instruction sessions are being held. The first took place yesterday.
But such a revolutionary switch is, by its very nature, accident prone. Major market changes rarely go through smoothly. It seems impossible to find a trader who is not apprehensive about the first few weeks of order- driven trading. There are complaints that once a trade is punched into the system there is absolutely no opportunity to take remedial action. And cock-ups could prove hideously expensive.
Vast sums of money have been expended gearing up for the change which is seen in many quarters as the biggest upheaval since Big Bang 11 years ago when eyeball-to- eyeball trading ended with the closure of the traditional Stock Exchange floor.
Big Bang destroyed the old stock market. Following the subsequent crash there were massive rounds of redundancies. There are fears that even if equities continue their long bull run, order-driven trading will lead to more job losses and kill much of the personal contact trading which has survived despite the advent of screen dealing.
It could end the power of the big market-makers, many of whom might soon be surplus to requirements.
Under the present quote-driven system they make a market in shares, enjoying a profitable gap between buying and selling prices. The order- driven system leaves them in limbo. Potential share trades are computerised, displayed on an order book. They sit there until they can be fully or partly matched.
The cost of dealing under the new system has yet to be decided. The Stock Exchange is considering charges and hopes to provide details of the cost structure this week.
The quote-driven system charges have led some traders to conclude that Stock Exchange costs will be higher than Tradepoint Financial, the stock market in miniature which has been striving to become a dealing force.
Tradepoint, which already offers an order-driven system, should benefit from the Stock Exchange's conversion.
Whether it will retain the perceived price advantage will not be known until the cost of Stock Exchange deals is set.
Still, talk that it could have a dealing advantage has been good for Tradepoint shares. They are traded on AIM, the junior market which is unlikely to be coerced into order-driven trading because of its lack of liquidity. Only last month Tradepoint shares were bumping along at a 65p low with the company's future in question. Then came a pounds 11.4m rescue package with a group of venture capitalists bankrolling the company, which lost pounds 6m in the year to end March. Its shares ended last week at 116p; last year they touched 180.5p.
Compared with the Stock Exchange, Tradepoint is a veritable tiddler. In July it handled pounds 30.8m of trade while the Stock Exchange accounted for pounds 221bn.
Order-driven trading must hasten the arrival of tiered stock markets to accommodate institutions and smaller investors and, indeed, smaller companies.
The requirements of the top 350 companies and those on the undercard are vastly different. And, of course, the needs of institutional investors and private players are poles apart.
Brian Winterflood of small company jobber Winterflood Securities has suggested segmentation of listed shares. He favours three categories - a big board 350, then what could be called a National Market made up of the 1,750 smaller companies with full listings, and then AIM. It could be argued that in investment terms a two-tiered market is already evolving with the gap between the way big and small investors are treated yawning wider by the week.
There is a plethora of profit announcements this week. Norwich Union, the insurer expected to be voted into Footsie this month, makes its maiden announcement on Wednesday with interim operating profits of pounds 311m expected.
Centrica, once part of British Gas, is another offering first-time results. The gas distributor is likely to offer an interim net income figure on Thursday of around pounds 40m.
British Aerospace and BTR also appear on Thursday with the aircraft maker expected to enjoy a pounds 100m interim lift-off to pounds 295m and BTR, still in the restructuring throes, likely to manage a much more pedestrian pounds 545m against pounds 605m.
Other heavyweights with interim figures include Blue Circle Industries (pounds 144m against pounds 116.3m expected); Caradon (pounds 76m against pounds 81.3m); and Williams (pounds 123.5m against pounds 114.1m). Then there is United News & Media (pounds 153m versus pounds 151.9m); Legal & General (pounds 168m, up from pounds 134.3m) and Rio Tinto (pounds 355m, down from pounds 361m).
Enterprise Oil, with net income probably down from pounds 73.8m to pounds 63m, is also on the reporting schedule; so is one of the market's oldest takeover favourites, United Biscuits.
In days gone by United has enjoyed frenzied takeover speculation. But a bidder has failed to surface and United's shares have been dunked down to as low as 196p. They are now 208p against a peak of 434p three years ago. Interim results on Thursday are unlikely to offer any encouragement - the market is looking for pounds 32m against pounds 44.9m last time.
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