MPs to grill head of Stock Exchange

THE opening of a Treasury Select Committee probe into the London Stock Exchange tomorrow is expected to herald the start of a campaign to replace self-regulation with statutory regulation from outside.

John Kemp-Welch, the Exchange chairman, is to be grilled by the 11 committee members on a series of blunders that have tarnished its reputation and brought its future at the heart of the City into doubt.

The Exchange's stock has hit an all time low, following the debacle of the Taurus computerised settlement system, rows over changing the way prices are set by market-makers and, most recently, the dismissal of its chief executive, Michael Lawrence.

"We'll be asking some very difficult questions," said Labour committee member Stephen Timms. "It doesn't seem to quite know where it's going. There's evidence the Stock Exchange has been unable to grasp the need to clearly define its role and its relationship with its members."

The Exchange often hits conflicts of interests in its triple role - as a club for members' interests, of regulation and investor protection, and as a seller of commercial services - and committee members have already started talking about change.

"There's a recognition that self-regulation is converting itself into statutory regulation," said Malcolm Bruce, the Liberal Democrats' treasury spokes-man. "It's extremely important to the City and therefore Brit- ain's economy. You can't just sit back and say: 'It's private and not of concern to Parliament'."

The top City watchdog, the Securities and Investments Board, has significantly been invited to give the last oral evidence. It is thought likely to propose changes to regulation and investor protection, that may bring the roles more firmly under its wing. One Conservative member of the committee privately said that nothing could be ruled out. However, the Tories are likely to fight to preserve the facade of self-regulation, even if the structure behind it has changed.

Far from burnishing the Exchange's reputation, the hearings, scheduled for five days over the next two weeks, are expected drag it down to new depths.

Among two dozen parties that have made written submissions and the six invited to make oral presentations is Mr Law- rence, who was deposed on 4 January after losing the confidence of leading members of the Exchange.

Already dismal relations are said to have deteriorated since then due to a less-than-generous severance offer from the Exchange. With Parliamentary privilege, he would be able to speak freely about the problems he faced during his two years at the helm.

Among the big issues to be discussed is the move towards setting up an order-driven system common to most other exchanges.

Taurus, abandoned following cost overruns and delays, will also be on the agenda, and there may be embarrassing questions about the Exchange's attempt to derail a company that offered real-time share prices over the Internet.