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What a week. The last time I recall the Stock Exchange being unable to


operate was in the aftermath of a hurricane that scythed its way through


South-east England, blocking roads and railway lines and preventing dealers


from arriving at work. It was unfortunate that the October 1987 storm took


place just before one of the biggest ever falls on Wall Street. The closure


of the London market that Friday meant that shares had a lot of catching up


to do on the following Monday – on the downside. The inability of the Stock


Exchange to facilitate trading last Wednesday may not have had quite such


dramatic consequences but was unfortunate nonetheless.


Last week&#39s systems debacle found dealers twiddling their thumbs for most


of the day. The announcement at 12.22pm that there was no chance of trading


being possible for three hours led to doors being jammed in the rush to hit


the bars while there was still time. It was difficult to begrudge them a


long lunch. Several of the dealers on our trading floor had tickets for the


Chelsea match which, given the talk of extending trading hours into the


evening to cope with the backlog of orders (which is what happened) must


have meant that few expected to be present at Stamford Bridge.


There was a trio of unfortunate coincidences for the Stock Exchange on


that difficult day. The Nasdaq had enjoyed extremely volatile conditions


the previous day, swiftly dubbed “Charcoal Tuesday” by the Americans. While


the final fall was relatively modest (at one stage, prices were more than


13 per cent off) there was speculation that an end-of-tax-year sell-off of


technology stocks would take place in the UK. But for many investors, the


chance would have been a fine thing.


The next unfortunate coincidence – that Wednesday was, indeed, the last


day of the financial year – resulted in considerable anguish for private


investors and their advisers. Any final capital gains tax avoidance


measures had to be completed during that day&#39s trading – no easy matter if


the markets are closed. The sense of frustration was palpable and, although


the ultimate real cost to private investors was probably small, it must


have been very aggravating to find that you could not have your trades


executed.


The events demonstrated the importance of technology in markets. Most


brokers dealing with private investors channel their business through


retail service providers – market-makers who guarantee best execution of


orders that are fed to them. As the orders are delivered electronically, it


is a little like a pipe into which you pour purchases and sales on behalf


of your clients. The pipes were filling nicely during last Wednesday but,


of course, the taps could only be turned on at 3.45pm when the market


opened. Unfortunately, the taps automatically turned off at 4.30pm when


trading usually finished. The fact that market hours were extended to 8pm


meant that dealers had to resort to the practice of ringing up


market-makers to place orders, slowing the whole process.


Conspiracy theories abounded as the inquest continued into what happened.


Could it be that a frustrated technology investor, angered at losses


incurred during recent trading, had hacked into the Stock Exchange&#39s


computer? The conjunction of planets was cited as a reason while,


apparently, a helicopter was seen hovering silently over the Exchange. The


best suggestion, though, was that this would never have happened if we had


maintained floor trading, so we should set up a new market in the


Millennium Dome.


The contrast between the deluge of media interest and the actual outturn


of events suggests this was about as big a storm in a teacup as you could


find. Don&#39t forget that the next few weeks are the time to be taking out


your 2000/01 Isa, not April next year. The downward spiral in technology


shares is postponed – perhaps temporarily. This promises to be an


interesting tax year for investors.

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