Hmmm.....Quite a little trend going here.

R.

London Stock Exchange breaks tradition to become shareholder-owned company 5.29 p.m. ET (2129 GMT) July 30, 1999

By Bruce Stanley, Associated Press

LONDON (AP)  The next company to be listed on the soon-to-be restructured London Stock Exchange could be ... the London Stock Exchange.

The management board of Britain's largest stock market said Friday that it plans to end the LSE's 240-year status as a member-owned organization and transform it into a company controlled by shareholders.

The proposal aims to make the exchange more competitive and efficient in an era of intensified electronic trading. Initial shareholders will be the exchange's 294 current members, but they will be able to sell their shares to third parties, including foreign investors.

Although the LSE has no plan yet to list itself as a publicly traded company, an exchange spokesman speaking on condition of anonymity said that making shares available for sale to the public was a logical next step.

"To compete on equal terms in today's market, our decision-making processes must be geared to rapid response both to customer demand and changing economic conditions. The new structure will achieve this,'' LSE chief executive Gavin Casey said in a statement.

The plan is part of a global transformation in stock markets, propelled by the increase in cross-border trading of shares and the rapid growth of electronic trading systems. The two largest U.S. stock markets  the New York Stock Exchange and Nasdaq  are both weighing plans to move to for-profit status.

Technology that has allowed millions of people to trade using the Internet has led to trading networks that link buyers and sellers, bypassing the traditional exchanges. These trading systems, known as electronic communication networks, or ECNs, already have grabbed away an estimated 30 percent of the trading volume from Nasdaq.

The potential challenge from ECNs was a major factor in the London exchange's decision to abandon its mutual status and adopt a more commercial structure. To do so, the London exchange will need the approval of 75 percent of its member firms. The board has not set a date for seeking such approval.

Founded in 1760 as a club of brokers at Jonathan's Coffee House in London, the LSE now has an average daily trading volume of 1.3 billion shares worth $2.6 trillion.

The NYSE, by comparison, has a smaller average daily trading volume  802 million shares  but a much bigger share value of $16.1 trillion.

The planned restructuring would be the biggest evolutionary change for the LSE since 1986, when the exchange entered an era of dizzying growth by opening its membership ranks to firms, instead of individuals, in a step known as "Big Bang.''

Shareholders tend to demand greater accountability from a company than members do, and their focus on profits tends to force management to become more competitive.

But some observers question the wisdom of the LSE's shift away from mutual status  the ownership of a business by its members.

"De-mutualization is likely to become more a part of corporate life. Stock exchanges are a part of that,'' said Gishan Dissanaike, a lecturer in finance at Cambridge University's Judge Institute of Management Studies. "Whether this is entirely healthy isn't clear yet because the long-term effects have not yet been studied.''

Also, the London exchange's plan may not be sufficient to protect it from leaner, cheaper competitors, said Laurence Copeland, a finance professor at Cardiff Business School.

"They're losing market share all the time to electronic dealers, and they're deciding late in the day to try to catch up. Basically, they can't compete on cost,'' Copeland said.

The LSE is currently talking with seven other European stock exchanges about setting up a single pan-European equities market, and it believes its transformation into a shareholder-owned company will help speed such integration.

But talks between London and the Deutsche Boerse, Germany's main exchange, are said to be bogged down on issues of ownership of the planned regional exchange and the choice of technology to be used for its trading platform.

-- Roland (nottelling@nowhere.com), July 30, 1999