London Bourse Reels From Automation Failure
LONDON bankers and securities traders have launched an urgent search to replace the Taurus computerized stock-transfer system, which collapsed earlier this month before it came into operation.
Financial analysts say that unless an alternative paperless transfer scheme can be devised quickly, the British capital's "Square Mile" risks losing its position as Europe's leading financial center.
"We must move quickly to put another system in place, or cities like Frankfurt and Paris will steal a march on us," said a member of a special task force set up by the Bank of England within hours of the collapse of the 14-year, British pounds400 million Taurus project.
The Taurus's downfall became almost inevitable in February, when stock-exchange computer analysts said it would take an additional three years and British pounds400 million to complete the project.
The years wasted on Taurus - short for transfer and automated registration of uncertificated stocks - have left London well behind other leading financial centers in modernizing settlement systems. The model for other European exchanges has been New York, where the rapid transfer of shares has been the norm for years.
Frankfurt, admittedly with trading volumes much lower than London's, can push through settlements in less than the internationally recommended three-day cycle. It uses a single custodian - the Deutsche Kassenverein - to deal with share transfers. Paris, too, uses a central depository - Sicovam - and settles most transactions within three days.
The decision to abandon Taurus skewered what promised to be Europe's most sophisticated software system.
Peter Rawlins, the London stock exchange's chief executive, announced abandonment of the project March 11, then resigned. About 350 people working on Taurus have been sacked.
SIR Hugh Scott Smith, the stock exchange chairman, struck an optimistic note March 19, predicting that when the dust had settled "London will continue to play its central role in Europe's capital markets."
London finance houses, which contributed money and manpower to Taurus, are angry over the stock exchange's failure to push the project through to completion and seem likely to demand financial compensation.
Sources in the capital's financial district report a growing feeling that the new Bank of England task force will recommend early acquisition of an electronic settlement system from abroad to meet the needs of professional traders, with private investors having to go on relying on paper transfers for the time being.
For more than a century, anyone trading stock on the London market has needed two documents: a share certificate issued to each shareholder as proof of ownership; and a completed stock transfer form to be sent to the company, enabling it to make a transfer of shares.
Typically, this means that three weeks or more are needed to complete a transaction.
Taurus was to have replaced this ramshackle arrangement with an automated process. The urgency of doing so became clear in the mid-1980s as the Thatcher government's privatization policy gathered pace and huge numbers of citizens purchased shares.
Taurus struck problems from Day 1. Initially there was to have been a single database serving all banks and stock traders. But nobody could devise a system that guaranteed security and secrecy, so in the late 1980s Rawlins and his development team switched direction. They tried to develop a series of linked databases, hooking up about 400 stockbrokers and 200 quoted companies and other institutions. Along this network traders hoped to be able to make lightning-speed transfers.
A former member of the Taurus design team, who is now looking for a job, said the search for a satisfactory system "produced conflict between the champions of large-scale institutional investors and private investors."
He said there had also been "a series of clashes" between supporters of a central share register and existing registrars who hold nine-tenths of the market.
One registrar, explaining his dissatisfaction, says: "Turkeys don't vote for Christmas."