The scrapping of the Taurus system, first mooted in 1979 and already two years overdue, is a huge embarrassment for the City. It severely undermines the credibility of the Stock Exchange in the competition with other financial centres for international share- dealing business.
Peter Rawlins, chief executive of the Stock Exchange, handed in his resignation yesterday over the fiasco. A controversial, abrasive character, Mr Rawlins had been credited by many with bringing some coherence to the often chaotic development of the complex computer system in his four years at the Exchange. A new chief executive will be sought from outside the Exchange.
The abandonment of Taurus leaves London with an archaic system in which shares are paid for and settled - delivered to the buyer and marked on a company's register - in a mountain of paper up to three weeks after they are traded. Stock markets in the United States and continental Europe that have electronic settlement insist on almost immediate payment and delivery.
The debacle will also raise concern in the Government about the City's vital earning power.
But it will also give Norman Lamont, the Chancellor, a windfall of pounds 1bn in the coming financial year, as he puts the finishing touches to next Tuesday's Budget. Stamp duty on share transactions - due to be scrapped when Taurus came on stream - will continue, bringing the Treasury the equivalent of two-thirds of a penny on income tax.
The decision to dump Taurus came as a shock to the City, even though many financial institutions had known for at least 18 months of the fundamental problems facing the immensely complex computer development programme.
It prompted an orgy of recrimination, with more than 150 institutions, including stockbrokers, banks and registrars which had already devoted staff and resources to preparing for the new system, facing up to scrapping the lot.
Senior City figures estimated that well over 1,000 staff could lose their jobs. The Stock Exchange said it had already spent pounds 75m on the project and would spend millions more on cancellation costs. It is sacking 220 employees and 130 contractors involved in the project.
Sir Andrew Hugh Smith, the Exchange's chairman, blamed the Taurus failure on compromises between different interests made at the start of the project in 1987.
He said it was only late last year that the Stock Exchange board learnt that the various bits of the system which had been developed did not operate properly. Some parts of the system were being tested while other parts had not even been designed, said Sir Andrew, which, he admitted, was 'bad timing'. There had been a failure inside the project to communicate the bad news to the board, but he said that this failure was based on 'self-delusion' rather than an intention to mislead.
Sir Andrew also said that the share trading business had 'changed hugely since the project started. We were running the risk of developing a system that relatively few people would want to use.'
Technical experts also blamed other factors for Taurus's failure - the proposed use of a several registers run by City firms instead of one central 'book'; the greater openness of share ownership information in London compared with other markets; and the Exchange's penchant for continually changing its mind over the system's specifications. London also has particular problems caused by the huge volume of shares traded, compared with Paris or Frankfurt.
Taurus entered its death throes about six weeks ago. The Stock Exchange board became so concerned that it asked Stewart Senior, a partner of Coopers & Lybrand, - the chartered accountants deeply involved in developing the system - to conduct an investigation. Mr Senior reported 10 days ago that Taurus would not be ready for another two to three years and only at anything up to double the present cost.
The Exchange then decided to abandon Taurus and asked the Bank of England to take over the development of an automated settlement system. Sir Andrew said the Exchange would not be advising the Bank how a new system could be set up because of the damage to its credibility.
The Bank responded to the Exchange's pleas on Monday by assigning one of its leading 'firefighters' - Pen Kent, an associate director - to the task of searching for an new system from scratch. Mr Kent said yesterday he wanted to find a cheaper alternative to Taurus which would be quicker to implement. 'If you've got an idea, write a paper and send it to us,' he said.
The abandonment of Taurus could embroil the City in a welter of litigation.
Brokers and bankers may consider suing the Exchange for the huge bills they have incurred developing their own systems, while Sir Andrew refused to rule out taking legal action against market employees and contractors who failed to communicate fully the failings in the system under development.
Labour last called upon the Government to take urgent action. Alistair Darling, its City spokesman, said: 'It is not just a matter for the Stock Exchange or City traders. There is a national interest in maintaining London's premier position. The Government's hands-off and disinterested approach has got to end.'
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