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.