Two-tier system suggested to replace Taurus

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The Independent Online
THE Stock Exchange admitted yesterday that a two-tier settlement system that offers 'different solutions for different people,' was the best way forward in the aftermath of Taurus, writes John Willcock.

The exchange insisted that the seeds of Taurus's failure were sown right at the beginning of the project in 1989 when too many compromises were made between vested interests, which eventually made the system far too complicated, expensive and time-consuming to build.

'Our mistake was to treat building Taurus as a technical problem. In fact it was always a political and business problem,' a Stock Exchange source said. 'The other big mistake, however, strange as it sounds now, is that we were always obsessed with the idea that we had to introduce the system as quickly as possible. This meant that we never stood back and asked 'what would be the most sensible way of building this system?' '

Private client firms are worried that small shareholders could be the victims of higher prices in a two-tier system. Paul Killik, of Killik & Co, said: 'My great fear is dual pricing.'

The two-tier solution would treat institutional shareholders differently from small shareholders. Institutions would be offered rapid computer settlement but small shareholders would keep paper share certificates and initially would have to be content with slower settlement.

The Bank of England Task Force on settlements had its first meeting yesterday but a spokesman insisted that the members were keeping an open mind until they had heard everybody's views. It was an 'instructive and encouraging' meeting, and would be continued at fortnightly intervals. The Task Force was 'ruling nothing out and nothing in'.

There was concern among institutional fund managers at the idea of banks getting together to devise a system that suited them - a move that could revive many of the old battles that bedevilled the Taurus system.

Paddy Linacre, of M&G, chairman of the Institutional Fund Managers Association, said: 'We don't want the banks doing one thing and the institutions another.' He advocated a co- ordinated package.

However, the banks have no direct representative on the Task Force, although Denis Child, chairman of the London Clearing House, was formerly a top man at NatWest.

The Treasury is keeping a close watch on the talks and has not ruled out moves to drop the legal requirement that companies keep shareholders' names on their registers.

This is a complication in the British system, which has made it harder to reach a simple technical solution of the kind used in some overseas markets, where it is possible to keep share ownership entirely on central computer databases.