SIB opens attack on market abuse: Unified system planned to co-ordinate City regulation Share settlement project will not go out to tender

THE SECURITIES and Investments Board is to launch a fresh attempt to co-ordinate the City's fight against market manipulation and other abuses of the system.

In a wide-ranging discussion paper on regulation of the equity markets issued yesterday, the SIB proposed a market conduct regulators' group, which would develop benchmark standards of integrity for City dealings.

The board also recommended the development of a central monitoring system, allowing unified surveillance of trading across all the markets, including the main Stock Exchange, off-market dealings in equities and futures and options exchanges.

This would combat the increasing tendency of insider dealers and market manipulators to spread their transactions through a range of different markets to beat the system by confusing regulators.

The Stock Exchange backed the proposal for central monitoring of transactions and volunteered its services to run the system, saying it had extensive experience of regulation and of working with other exchanges.

At present, each exchange is responsible for surveying its own transactions and the Securities and Futures Authority receives reports of over-the-counter deals. The Stock Exchange also receives some data from other exchanges, including Liffe, the options and futures exchange, but no one body receives all the information.

The regulators' group proposed by the SIB would ensure that the rules of all the City's junior regulators, which report to the SIB, are adequate to deal with misconduct. It would also advise regulators when new questions arose that were not covered by existing rules.

The paper says the group would not be a regulatory body with a new set of rules, but would be a way of coping with the proliferation of bodies involved in preventing abuse of the equity markets.

The paper, based on work by Jonathan Agnew, the former chief executive of Kleinwort Benson, says the new group should be tried experimentally for a year.

The proposals follow an announcement last month that the SIB had created a department to track potentially criminal cases of market abuse being dealt with by other financial regulators.

The paper says the SIB also plans to co-ordinate relations between all the City regulators and the various prosecuting authorities, and sees a strong case for a review of its own powers, although it does not want wider prosecution powers.

The discussion document looks at the Stock Exchange's claim that other markets are 'cherry picking' by offering new services at cheap rates, which they can afford to do because they do not bear such high costs of regulation.

It concludes that other exchanges should bear their share of regulatory costs, although it leaves open the question of how these should be measured. Some of the Stock Exchange's costs, it says, represent investments that could be an attraction rather than a deterrent to dealing. The exchange said it was still concerned about fair allocation of costs.

The paper also leaves open the question of whether a two-tier market should be developed, with one level specialising in retail investors and the other dealing with institutions. This is for the markets themselves to decide - but regulation should not get in the way of developments, the paper says.

The document proposes a series of measures to make dealings in the markets more transparent, which could reduce the need for detailed regulation.

Mr Agnew said: 'By requiring disclosure of additional information, regulators can avoid the need for additional regulation of investors and intermediaries since disclosure may prevent, reduce or remove market distortions.'

The proposed changes are:

Disclosure to investors of market- makers' quotes to inter-dealer brokers. Daniel Hodson, the chief executive of Liffe, strongly backed this proposal.

Publication, probably on a single tape, of prices and volumes of share transactions on recognised exchanges and on trading systems operating under the SIB's service company regime.

Publication of transactions in the over-the-counter derivatives market that relate to 3 per cent or more of a listed company's shares.

A review of Stock Exchange rules that allow delays in publishing certain transactions.

Publication of investors' short positions in the market, at least during the period between the announcement of an issue of new shares and its completion.

The document contains a large number of questions, on which comments are invited by May.

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