OFT studies rule on large trades: Concern about effects of greater secrecy

THE Office of Fair Trading is investigating a proposed rule change by the London Stock Exchange that would make trading by market-makers in very large blocks of shares much harder to detect.

Under the rule, set for introduction later this year, deals equivalent to 75 times or more of a share's normal transaction size would not need to be reported for up to five business days. Earlier disclosure would be possible once the market-maker had unwound or hedged 90 per cent of the block trade.

The proposed rule change follows lobbying by market-makers, who say that current rules, which require disclosure of very large trades within 90 minutes, expose them to significant financial risk. But the move towards making share dealing less transparent has caused concern at the London International Financial Futures Exchange, which fears that trading in its FT-SE 100 futures contract may be affected.

The Office of Fair Trading is also concerned that greater secrecy could be against the interests of shareholders and is studying the likely impact of the change with the help of London Business School.

Disclosure of share deals has been a battleground for the conflicting interests of shareholders, who want maximum visibility, and market-makers, whose prime concern is to avoid giving away their book position.

At present deals in all liquid shares - those where dealings of 2,000 or more are possible - must be disclosed immediately.

A delay of 90 minutes is allowed for deals equivalent to three times the minimum quote size. Deals in illiquid shares need not be reported until the following day.