The Week Ahead: Rival electronic trading systems turn on power

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The Independent Online
INSTITUTIONAL investors are being offered a new electronic share dealing facility. Garban Equities has signed up 37 customers and nurses high hopes of bringing another 40 or so on board in the near future. Later this month Posit, another computerised trading system, is due to start operating.

The new highly sophisticated systems are further illustrations of the continuing stock market revolution and must represent further competition for the heavily criticised Stock Exchange computerised order book.

Garban Equities is part of the money and securities broking group being demerged from United News & Media; its shares are due to arrive on the stock market in the next few weeks. The share dealing operation, in effect, stems from Garban's old inter-dealer broker business which was hit by the creation of the order book. Pat Turnbull, chief executive of Garban Equities, says: "This innovative system is designed to improve liquidity and create a more open market; it may even help reduce spreads."

The Garban and Posit electronic broking systems are similar although there are distinct differences. Posit, developed by Societe Generale, the French bank with an influential London securities presence, and American group Investment Technology, attempts to match submitted orders twice a day, whereas Garban operates on a continuous basis.

Garban's minimum order is 100,000 shares although smaller parcels will be accepted for illiquid stocks and small companies. Clients will have to submit three orders at a time.

Once an investor is in the Garban system he is still free to deal elsewhere as execution requires agreement.

Both Garban and Posit offer complete dealing secrecy and cost advantages. Deals are struck at existing market prices.

The new systems appears as Tradepoint Financial, which has described itself as a stock market in miniature, is experiencing an uphill struggle. A few years ago its shares were 180p as investors warmed to its electronic system. They now bump along at a 16.5p low.

Tradepoint has made little impact on the stock market. And it cannot be described as a powerful competitor to the order book. But Garban and, when it gets going, Posit are certainly capable of attracting trading away from the order book which, following Stock Exchange recalculations, is said to account for 56 per cent of relevant trades. The newcomers also cover a much wider range of shares than the order book, which is currently confined to the 100 Footsie constituents and another 25 from the mid cap index. The order book's next ambition is to extend its coverage to the top 350 shares, the Footsie stocks and the 250 in the mid cap index. Current thinking is it will not grow beyond 350 constituents.

British Airways, one of the blue chips on the order book, is on the week's results runway. Interim figures are due today and a sharp improvement to pounds 385m against pounds 273m is expected. But last week BA was assailed by worries its profits were being hit by low-cost airlines. Passenger data showed a fall in the sales of more expensive seats, putting margins under pressure. Investment house CSFB was so disconcerted it pulled back its year's profits forecast to pounds 450m from pounds 515m, clearly indicating that BA is now hitting turbulence.

Rivals BT and Cable & Wireless also feature on the profits schedule. Cash rich BT, still sitting on the proceeds from the sale of its 20 per cent interest in MCI, offers second quarter profits. They could be accompanied by another special dividend or a sharp increase in the interim payment. Pre-exceptional profits could be pounds 750m, up from pounds 688m.

C&W dials in with interim figures, perhaps, pounds 800m against pounds 751m. But flat profits from the Hong Kong Telecom associate could hold back the results.

Another telecom company, TeleWest Communications, is due to report - but it will again be a story of losses. A pounds 90m third quarter deficit against pounds 83m is expected.

Third quarter figures are also due from insurance giant CGU. About pounds 150m could be announced. It would compare with the pounds 242m produced by Commercial Union and General Accident before the merger earlier this year.

PowerGen will certainly offer unimpressive interim figures. A little changed outcome of pounds 154m is the popular guess. Its planned take over of East Midlands Electricity is likely to generate more interest than the profits. The cost savings expected to come from the pounds 1.9bn deal will be closely studied. PG struck a bargain with the Government to sell some of its coal fired generating capacity in exchange for avoiding a Monopolies and Mergers Commission probe into the East Midlands acquisition.

WH Smith has enjoyed another eventful year but since Richard Handover arrived as chief executive a year ago there has not been even a whisper of boardroom tension. Certainly Mr Handover has received a vote of confidence from the stock market. Smith's shares have held up surprisingly well during his reign, particularly in view of the slump which has trapped so many retail shares. They fell to 380p a year ago, romped ahead to 589p and ended last week at a respectable 525.5p.

The group's profits covering 15 months should emerge at around pounds 142m up from the equivalent of pounds 129m. The year end is being changed from May to August.

With the horrendous 1996 pounds 194m loss - the first in its two centuries of trading - firmly behind it Smith has been reshaped and looks much more confident. It raised some pounds 450m selling businesses, including bookseller Waterstones and acquired John Menzies retail operations for pounds 68m. About pounds 250m was used buying in shares.

Troubled British Biotech is also due to report this week - a little changed second quarter loss of pounds 10.8m is on the cards.

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