THE City was stunned yesterday by the Stock Exchange's decision to
scrap its proposed computerised settlement system, Taurus, after some
#400m has been spent on its development.
The Exchange's chief executive, Peter Rawlins, has resigned following
the move and 220 employees have lost their jobs.
According to the Exchange's latest annual report, Mr Rawlins was paid
#272,584, including a #60,000 performance-related bonus. The scrapping
of Taurus is a major blow to the Exchange's prestige and to the City's
ambition to be Europe's financial centre.
Now the Bank of England has taken over responsibility for finding a
way to improve the settlement system which is currently antiquated
compared to those which have been introduced in competing centres like
Frankfurt and Paris.
Apart from ending 220 jobs immediately, 130 contracts with outside
contractors have been scrapped and hundreds more jobs in securities
houses working on preparations for the system have been put at risk.
The Exchange explained that after a review of the project by senior
management and Coopers & Lybrand it had concluded that it would take at
least 15 months to get the system to the stage of full-scale testing and
two to three years to get it operational. In view of the extra time and
costs involved it was decided that continuation was unjustified.
This will mean that the City will remain dependent on the existing
paper-based Talisman system for years yet when other stock exchanges are
already using electronic methods.
The Exchange itself has spent some #75m on Taurus and firms in the
City have spent four times this on developing computer systems for it,
though not all of this will be wasted.
The British Bankers' Association commented: ''Banks have committed
considerable resources in terms of systems development and management
time to the project. London's credibility as an international securities
market is at stake and an alternative system is needed urgently.''
However, private clients will be relieved that the computerised
registration of share transactions, which would have done away with
traditional share certificates, is to be scrapped. Small shareholders
were also concerned that they would be forced to register their holdings
with their broker's nominee company.
The end of Taurus was welcomed by the Association of Private Client
Investment Managers and Stockbrokers. ''The abandonment of Taurus is
regrettably the inevitable and necessary end result for a project which
was fundamentally flawed from the outset,'' said chief executive Michael
Baker.
Taurus has been dogged by criticism and technical problems from the
start largely because it tried to be all things to all people. It was
imposed on to an existing system rather than starting from scratch. As a
result of pressure from those affected it emerged as a compromise to
preserve the existing roles of registrars, custodians, stockbrokers and
others in settlement and registration. This made it fiendishly
complicated technically.
The Bank of England has established a task force chaired by an
associate director, Pen Kent, to come up with a new system. The urgency
of the task is recognised by giving it just until the end of June to
report.
One option could be for a simpler centralised computer system to keep
track of all share transactions. The registrars might object this as
undermining their role but then they are mostly owned by the banks whose
securities operations would benefit.
One essential ingredient will be the scrapping of the cumbersome
three-weekly accounting period, possibly to a much shorter rolling
method. Frankfurt now has a three-day settlement period. The task force
will look at systems used in Europe and America and may invite tenders
from parties outside the Stock Exchange to create and run a system,
which would greatly reduce the Exchange's position.
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