View from City Road: Weak case in a strong market

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The Independent Online
ANOTHER day, another record. The London stock market, helped by American optimism, has ignored political uncertainty, economic gloom and corporate caution to reach new highs on three successive trading days.

Whether it can continue to rise above all this and discouraging news from Germany too looks doubtful in the short term. But the market's firmness is based on expectations that profits of British companies will rise by 15 per cent or more next year thanks to lower interest rates, higher productivity and sterling's devaluation.

Against this background market-makers' arguments for a relaxation in disclosure requirements look odd. Just as conditions appear to be improving - the recent rise in share prices has been accompanied by a recovery in volumes - firms at the heart of the stock market have adopted a position of weakness, claiming they are making so little money in London that they are no longer prepared to devote capital to making prices. If they no longer had to disclose large trades they would be able to take on a line of stock and sell it before the market got wind of their plans, they say.

Market-makers are on stronger ground with liquidity. If they could deal in secret they might be more prepared not just to put more money into the market but to take more risks. Fund managers of pension funds and insurance company portfolios want them to be braver. They are tired of being told they cannot sell 500,000 shares at once but must sell them in two lots because a market-maker will not take on the risk.

They also argue that unless there is a change in the rules more business will go overseas. Some privately admit that large numbers of shares in big British companies are already traded in New York in the form of American depositary receipts just to get round London's disclosure requirements.

Private client brokers are gearing up to oppose proposals for changing the rules, disclosed in the Independent yesterday. They say they would reduce visibility and so put small shareholders at a disadvantage.

This argument is likely to weigh heavily with the regulators so market-makers should not assume that the rule changes will be approved, whatever their financial difficulties.