When Ken Livingstone poses as a protector of the London Stock Exchange (LSE) you know something is up. The occasion was November's bid by Nasdaq, the US stock exchange which rivals the older New York Stock Exchange (NYSE) in size, for the LSE. The London mayor considered this an affront to honest capitalist competition and complained to the Office of Fair Trading.
But Ken's anxieties appear to be rather out of date. His advisers are overlooking the rapid decline in importance of the traditional exchange. Nasdaq's move was a response to a curious combination of soaring securities trading volumes over the last year and in-creased competition among traditional exchanges—partly the result of the fact that much of the increase in trading is happening somewhere else. Nearly all exchanges, from major to minor, have sought refuge from the storm in a series of proposals, marriages and consummations. The Nasdaq bid was a sign of robust competition rather than a conspiracy against the public interest.
Behind the corporate manoeuvring lie advances in technology and changes in legislation that are taking big bites out of the traditional stock exchanges' lunch. New electronic markets such as Archipelago, Instinet and the IntercontinentalExchange (which trades oil futures) have appeared, offering fast and cheap trading, which has put downward pressure on stock exchange fees.
And now traders do not even need these exchanges. A group of leading investment banks—the biggest share dealers—plan to set up their own trading platform in Europe, a process called "internalisation."
Regulators are encouraging these trends. The Regulation National Market System in the US will oblige all brokers to give their clients the best price on any market within one second. The markets in financial instruments directive in Europe means that share trades will not have to go through a regulated exchange. The only stipulation is that participants publish pre and post-trade prices.
One outcome of these developments is that markets such as the LSE and the NYSE trade a diminishing percentage of total volumes. More than half of equity trading in Britain and Germany takes place outside the traditional stock exchanges. Similar things are happening in the US. And some of the most vigorous growth in securities trading is not in equities at all but in derivatives such as futures and options. Here the biggest players are not stock exchanges but specialist markets such as the New York Mercantile Exchange, the London International Financial Futures Exchange and the two great Chicago markets, the Chicago Board of Trade and the Chicago Mercantile Exchange (which are combining).
Should we care as much as Ken does? It is true that anyone with a pension or an insurance policy ultimately gains from cheaper and more liquid securities trading. It is also essential that London—in the twin senses of the City and the metropolis—has an internationally competitive dealing system. To that extent we should care. But it is a mistake to protect the LSE on the assumption that it will always be the necessary vehicle for trading securities in London.
Independence for the ONS?
A row is brewing over government statistics. Buried in the Queen's speech was the following commitment: "Legislation will be introduced to create an independent board to enhance confidence in government statistics." It sounds innocuous. Who can be against greater confidence in government statistics?
The proposal is embodied in the statistics and registration service bill. It arises from a government announcement in 2005 that the Office for National Statistics (ONS) would be made independent—it is currently part of the treasury—and from a subsequent white paper, "Independence for statistics: A consultation document" (March 2006). In the rarified world of official statistics, however, the suspicion is spreading that the proposal is far from innocuous: it will not guarantee independence and could even undermine public confidence further.
The crux of the argument is the extent to which ONS statisticians—whose competence and integrity are widely respected—will have the final word on statistical matters. William McLennan, former head of the Central Statistics Office (forerunner of the ONS), has fiercely attacked the government in a letter to the Financial Times, arguing that the proposed board will not be free of ministerial meddling and will have excessive powers to direct what statisticians do. It is expected that the ONS will be relabelled a non-ministerial department subject to the oversight of a ministerial department—which, funnily enough, will probably be the treasury.
This matters. We depend more than ever on accurate data, and it is ever harder to find. Remember the anguish over the 2001 census (see "The last census?" by Graham Bowley, Prospect November 2003) and the miscalculation about east European immigration? Mervyn King, governor of the Bank of England, has pointed out that such gaps in our statistical knowledge make good economic forecasting harder. Accurate numbers are hard enough to pin down without political interference. We should watch these latest proposals closely.
