London Stock Exchange looks for pounds 50m savings

The London Stock Exchange is planning to slash costs by about a third as it transforms itself over the next few years into a "new lean, mean machine", in the words of one board member.

The board yesterday discussed proposals for the first stage in cost reductions, by some pounds 30m from the current level of pounds 160m, to take account of the big loss of income with the imminent introduction of electronic share settlement.

Some 250 jobs have already been earmarked to go as a direct consequence of the new Crest settlement system, which comes fully on stream next spring. Further out, however, the Exchange is planning for deeper personnel reductions. The current workforce is about 940, down from a peak of 2,800 in the wake of the 1986 Big Bang deregulation.

The full scope of the savings are contained in a strategic review, looking forward to the role of the Exchange at the end of the century. To be considered by the board in July, it foresees the need to make efficiency savings well beyond the first stage in cost reductions required by preparing for Crest.

Sources spoke of the Exchange aiming ultimately for savings of around pounds 50m from its position today, or a reduction of about a third. The Exchange has come in for heavy criticism from some of its powerful member firms and the Treasury for carrying a cost base no longer suited to its shrunken significance in the City.

Presenting yesterday the financial results for the year to 31 March 1996, executives stressed the continued progress in achieving significant savings, at the same time as the exchange is about to complete the modernisation of its Sequence information and trading platform.

"Through our concerted efforts to control costs, coupled with sustained investment, we have laid solid foundations for a financially viable Exchange in the years ahead," the chairman John Kemp-Welch said.

The Exchange last year reduced underlying operating costs by nearly 9 per cent to pounds 161m. The immediate challenge is that income of pounds 196m will soon be reduced by pounds 67m when Talisman, the settlement system currently run by the Exchange, is replaced by the automated Crest, independently owned by 60 financial bodies.

While much of the first round of savings will come from job losses and the end of the heavy investment spend required by Sequence, the longer term reductions in the strategic review will involved cost reductions across the board. "We are talking about a much better management of resources, getting the cost base right down while delivering a quality service to the market," said a source.

Separately yesterday, Kenneth Clarke, the Chancellor, agreed in principle that market makers should continue to enjoy the privilege of exemption from stamp duty when the new system for dealing in equities is introduced to London next year.