Square Mile under new threat from Amsterdam

JOHN EISENHAMMER

Financial Editor

The Amsterdam Stock Exchange has moved swiftly to exploit the turmoil at its London rival by stepping up its campaign to lure City business on to the continent.

Leading market-makers have just been sent invitations to a high-level dinner at the Netherlands embassy later this month to promote the advantages of the Amsterdam Stock Exchange. "They are not hanging around. All the Europeans are dramatically stepping up their efforts to take advantage of the mess in London," said a head of market-making at a leading City investment bank.

The continental moves come as the London Stock Exchange is reeling from the shock-effects of the firing last week of Michael Lawrence, its chief executive. He was ousted after the board said it had lost confidence in his management, amidst controversy over proposals radically to reform the way shares are traded in London.

Michael Cassidy, who heads the promotion of the City at the Corporation of London, sharply criticised yesterday the abrupt manner of Mr Lawrence's dismissal, and the fact that the public row has further undermined the already shaken prestige of the Stock Exchange, as well as damaging the reputation of London as a financial centre.

To the City's continental rivals, anxious to make full use of new rules allowing so-called "remote membership" of their exchanges by London-based investment banks, the Lawrence debacle is being seen as a heaven-sent opportunity. The Dutch invitations cap a robust lobbying campaign in recent months highlighting the advantages of using the Amsterdam exchange over London for European shares. New European directives now allow an investment bank which is licensed in one member state to deal as a member on other exchanges without physically having a presence there. The effect of remote membership has sharply accelerated the loss by London of its European share trading business, which has been moving back to the continental exchanges, now seen in some quarters as more efficient than London.

The Frankfurt and Stockholm Stock Exchanges, notably, have stepped up their lobbying campaigns. "They are pushing very hard for City firms to take out remote membership. They have seen the problems on the London exchange, and know that nowadays with everything being electronic, when it comes to dealing it does not matter where you are based," said a senior market-maker.

The London Stock Exchange is expected on Friday to publish its consultation document on share-trading reforms. The central thrust is whether to introduce a fully-blown automatic order-driven system alongside London's traditional dealing method run by powerful market-making firms, which use their own capital to make firm buy and sell prices for shares.

Representatives of the big market-making firms, which have now increased their representation on the steering committee which will oversee the market reforms, yesterday stressed that the exchange's August deadline for introducing order-driven reforms is unrealistic. But a number of head market-makers also dismissed suggestions that reforms could be blocked.

"If the broad consultation reveals support for order-driven capacity then there is no way market-makers can say no with any credibility. We have got all the technology that was not there before, change will come," said one market-maker.