MPs accuse Stock Exchange of facing 'life crisis'

DAVID HELLIER

John Kemp-Welch, the chairman of the London Stock Exchange, was yesterday forced to deny charges of complacency and that the institution faced a "life crisis" under questioning from MPs on the House of Commons Treasury Select Committee. At the same time he said that the exchange's whole decision- making framework was being reviewed by his deputy chairmen, Ian Plenderleith and Ian Salter.

The MPs are looking at the role of the exchange in the City of London and are asking whether the institution, which employs 1,100 with a budget of nearly pounds 180m, has a future at all.

The exchange's role has recently been questioned both in the City and in wider circles, and its reputation was damaged recently when its chief executive, Michael Lawrence, was suddenly sacked.

Mr Kemp-Welch faced a barrage of questions about the exchange's future from Quentin Davies (Conservative), Diane Abbott (Labour) and Clive Betts (Labour) about the exchange's declining role in the City, the recent departure of Mr Lawrence and its cost base.

Mr Kemp-Welch said it was unfair to say that the exchange was complacent, particularly about when it came to the cost base. He said the exchange was trimming its costs. "I can assure you that the process is going to continue and wherever we can we will institute changes to improve efficiency to reduce costs. I wouldn't wish this committee to feel there's any complacency in the desire to drive down costs as far as we reasonably can."

Mr Davies pointed out that the 1,100 staff at the exchange could be compared with the 1,400 people currently employed at the exchange's counterpart in New York where turnover, he said, was seven to eight times greater.

Mr Davies said: "What concerns me is that the London Stock Exchange has seen that some of its functions have been hived off but that in your organisation and ambitions you have not reflected that fact."

Mr Kemp-Welch hit back at suggestions that the exchange was either facing a crisis of identity or that it was not willing to accept competition from other quarters.

Asked by Mr Davies if it was undesirable for there to be other securities markets operating in the UK Mr Kemp-Welch replied: "No. We welcome competition. It keeps us on our toes, but we firmly believe in the central market place. Fragmentation is not desirable."

Mr Kemp-Welch revealed during the session that he had asked his two deputy chairmen to conduct a review of the exchange's corporate governance in the wake of the recent sacking of Mr Lawrence. One of those deputy chairmen, Mr Plenderleith, agreed that the exchange's decision-making process needed reviewing.

Mr Plenderlieth, who is also a Bank of England executive, has been asked to fulfill some of the functions of a chief executive until a replacement for Mr Lawrence has been chosen. He will be doing so on a non-executive basis. "What I hope to bring is an independent perspective from the Bank of England's viewpoint ... I believe that the exchange has to change with the rest of the world."

Mr Kemp-Welch said: "I have asked the two deputy chairmen to conduct an exercise over three months that will look at the exchange's governance."

He dismissed suggestions that his former chief executive had been sabotaged by the interests of the City's larger and dominant investment banks, which opposed his changes to the trading system.

Mr Kemp-Welch said: "I do not wish for a moment to dismiss the seriousness of the chief executive's dismissal." He went on: "I had a meeting with two representatives of the major firms in December. They expressed their concern. The issue of the possible change in market structure was only one of those concerns in the sense that they felt they were not being fully informed in the debate. At the meeting there was no request whatsoever on behalf of the major firms for Mr Lawrence's dismissal."