View from City Road: Chance for the Stock Exchange to reinvent itself

At first sight the reprieve of the Unlisted Securities Market, at least until 1996, smacks of procrastination by a demoralised Stock Exchange. It looks as if it has lost its confidence, following the abandonment of Taurus.

But the delay is also welcome, in that there is clearly demand for a second market for young companies. Killing off the existing market without creating a replacement would be unwise.

More than that, the delay provides the exchange itself with breathing space in which to gather its thoughts, reorganise its operations and reassert its authority.

As well as suffering from the humiliation of the Taurus fiasco, the exchange faces the refusal of some of its members to sanction any other developments and, most recently, suggestions that it might lose its remaining regulatory functions.

One idea is that its respected insider dealing investigation team could be transferred to the Securities and Investments Board as part of the formation of a central enforcement agency. Regulation would then have gone the way of settlement, which will almost certainly be transferred to a new body once a successor to Taurus has emerged.

The exchange would then be left with its core task of organising markets. But even here its hold is not absolute. Competitors are threatening to take business away and Andrew Hugh Smith, the chairman, admitted yesterday that the exchange might not necessarily run whatever replaces the USM.

The exchange must use the opportunity of the USM working party to plot the whole stock market's future, which is almost certainly a two-tier one, in which the needs of private shareholders are met separately from those of the institutions. Ironically this was also the deeply held view of Peter Rawlins, the former chief executive, who resigned on the abandonment of Taurus.

If the exchange can develop a convincing plan along these lines its future will be secure; if not it could sink without trace.