News Release
Reforms in the London Markets - Speech by Ian Plenderleith on 18 November
18 November 1997
We have been pressing ahead with reform in the structure of the UK sterling financial markets, and the pace of progress has notably quickened in 1997. Last year saw two notable events - the start of the gilt repo market and the completion of the Stock Exchange's Sequence project, to provide it with a new and modern integrated electronic platform for its trading and information services. This year we have already doubled up on last year, with four major initiatives - reform of the structure of the Bank of England's money market operations; the completion of migration to electronic settlement of equities on CREST; the successful launch of SETS, the Stock Exchange electronic order book for equity trading; and a major upgrade of the CGO electronic settlement system for gilts. We have a fifth advance to come next month, with the start of a strips facility for gilts. But for the fact that a central banker is not supposed to reveal that he knows how to play poker, I would call that a "full house"!
I believe these are major steps forward to improve trading market facilities, and the essential market infrastructure, in London. And the fact that the London markets have been able to bring so many major projects to a successful conclusion in so short a space of time speaks highly of the resources in depth available in the London markets and the ancillary services. But I would draw attention to one particular feature, which I think is of wider significance. The upgrade of CGO has been effected utilising CREST software - deliberately, in order to align those two electronic settlement systems - CGO for gilts, CREST for equities - more closely. This was a considerable technical achievement, because the operating processes in the two markets are different - equities settle on T+5, gilts on T+1 (and in some cases T+0); the equity market comprises a large number of relatively moderate-value deals, the gilt market a smaller number of much higher-value deals; hence delay in settlement in gilts is much more disruptive, and needs to be much less frequent, than in equities. Overcoming these differences has been a considerable challenge to the Bank team and I would like to pay tribute to their dedication and expertise and to their achievement in bringing the CGO upgrade to a successful and so far smooth launch just last week. I say this without immodesty because, though I was closely involved in overseeing the project, it was their technical proficiency that delivered the goods.
But this achievement has a wider significance. By utilising CREST software in CGO, we have now achieved for the market much of the benefit sought by those who favour a merger of the two systems. In particular, both utilise the same hardware, and the same software application; they operate on the same networks; and users can access both systems via a single terminal using a common gateway. The Bank is, as already announced, planning to seek the views of market participants on what the relative priorities should be in developing payments and settlement systems in London in the year ahead. This will include the possibility of full merger between CGO and CREST, but recognises that merger is only one of a number of IT projects UK financial markets may have to contemplate over the next few years, all of which represent potential claims on scarce IT resources. What is important in the meantime is that a big step towards integration of systems has been achieved, to the benefit of all market users.
