Leading Article: Does Taurus matter?

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THE CITY of London was supposed to be the only part of Britain that worked. Until John Major remembered manufacturing the other day it had also been, for more than a decade, almost the only part that was thought to matter. Making things was out, selling financial services was in. This was a skill in which Britain led the world. The City was among the few bits of crumbling Britain of which we could still be proud.

How much does the scrapping of the Stock Exchange's Taurus computer system dent that image? It certainly represents a massive and expensive bungle by those who conceived and executed the project. It is expected to cost at least pounds 275m and a thousand jobs, and to provoke a swarm of legal actions, the costs of which are incalculable at this stage. It makes everyone concerned look extremely foolish. Peter Rawlins, chief executive of the Stock Exchange, has taken the honourable course by resigning, and in doing so has set a much-needed example to others in public life.

The scandal also looks symptomatic, coming so soon after the troubles at Lloyd's insurance market and the regulatory failures of the Bank of England. The common factors are incompetence in high places, poor decision-making machinery, failure of control and dictatorial managers who did not listen to what people below them were saying. There is even a link with the London ambulance service, for that, too, tried to introduce a complex computer system without due care and attention.

Taurus provides a particularly glaring example of hubris in that it was an attempt to take a huge leap into an imagined future with an untried system, where small steps would have been better. Not only was it appallingly badly managed, but the whole project was probably misconceived. There is a good case for arguing that Taurus was not necessary at all, or anyway not in the form in which it was planned. The idea of putting all individual share settlements into a central register will turn out to be old-fashioned. Up to a point the Stock Exchange itself is no longer essential because shares can be traded directly between buyers and sellers by alternative electronic systems, such as Reuters. The exchange provides a settlement service that could be provided by others, such as banks.

What will be needed is a system that produces a shorter period between deals and settlements, and eventually instant payment, so as to reduce the risks that build up during the delay that now exists. Such a system already operates for big deals in the government securities market. Developing a similar system for large equity trades, plus introducing legislation that would make it easier to identify the real shareholders behind nominees, would be more appropriate than a vast centralised register.

So how deep does the damage go? It affects mainly the City's image and self-confidence. It will also do some harm abroad. But the amount of business involved will be small because Taurus was to have been used only for the domestic stock market, although it might later have been linked to international dealing. Most of the business done in London is in the international trading of equities, bonds and currencies, which will be unaffected. London does 90 per cent of Europe's cross-border equity trading but that requires only machinery for settlements, which already works well. It does not require a domestic register of stocks and shares.

London remains in a strong position as a financial centre, with more international telephone calls and air passenger movements than any other city in the world. It has been gaining international business in securities, foreign exchange and futures trading, though losing in insurance and probably in banking. It cannot afford to be complacent about its international position. But if it loses international business it will not be because Taurus has collapsed, or because of the mockery that follows; it will be because it has not kept up with the competition in other respects.

The reflections provoked by the failure of Taurus have more to do with the style and quality of British management, the role of the Bank of England in the City, and the shape of things to come in the markets. It is a reminder that executives who are nicknamed 'Napoleon' should be regarded with deep suspicion, that visionary excursions into new technology are highly dangerous, and that the City, having placed responsibility where it belongs, should avoid an orgy of indiscriminate recrimination. It should turn instead to quiet, realistic planning for a future without Taurus, or any hasty copy of it.