View from City Road: Changing the rules is not part of Warburg's job

Click to follow
The near-monopoly of SG Warburg over government privatisations appears to be going to its head. Not content with structuring the syndicates for marketing the third BT issue in such a way that the cream of the business goes to it and a handful of rivals, it now wants to change the London Stock Exchange rules to suit its book.

Warburg asked the Stock Exchange to insist that all dealings in BT shares in the four weeks starting next Monday be done for cash settlement rather than through the normal account procedures. That means the shares would have to be paid for - and the registers updated - within 48 hours rather than 10 days after the end of the two-week account. Warburg claims its aim is simply to help it identify the good guys - those who have added to their holdings since marketing of the offer started - and that it will have no interest in spotting the bad, who are selling ahead of the issue.

The exchange will announce its ruling later today. But there are signs that its stance, firmly supportive yesterday morning, shifted markedly during the day as the scale of opposition to the proposal, from market- makers and institutional investors alike, became clear. It is now likely that, instead of insisting on cash settlement for all deals, the exchange will simply emphasise the importance of keeping share registers up to date and point out that most market- makers will offer the facility.

All price quotes, however, will be for account settlement - although it may allow cash prices to be separately quoted. In other words, the exchange will have backed down.

Some of the complaints - that universal cash settlement would make stock lending and short selling more difficult, that it could help Warburg influence the market and that it makes it easier to identify sellers - partly reflect self-interest and, if Warburg's insistence that it is not interested in sellers is true, are misguided. But the issue goes far wider than the BT sale.

Warburg should not be allowed to control the London market. The exchange - and most large investors - already accept that faster settlement will benefit the London market, but it is not up to Warburg to conduct a pilot study.

Warburg says it will be able to identify those who had added to their holdings under the existing rules. It will mean more legwork and last-minute phone calls to check investors' claims when the issue closes. But that is what it is paid for.