The jury on Big Bang is still out, at least as far as arguably the most important group of all is concerned. Institutional investors are watching developments in London's newly liberalized markets like hawks, but are holding back judgement on whether they like what they see.

During the three years of preparation prior to Big Bang on Oct. 27, banks and investment houses were so involved in acquiring securities firms, recruiting personnel and installing new high-tech dealing rooms, that little consideration was given to the client.Now, though, the big fund managers have moved to center stage, for it is they who will largely determine the winners and losers.

"Great efforts are being made by all the investment banks to convince us they are the best" said a spokesman at Scottish Widows' Fund & Life Assurance, one of the top U.K. pension groups.

But the big institutions, which control billions of pounds worth of funds, will not be easily wooed. While they are already enjoying very considerable reductions in commissions, they are not whole heartedly in favor of every development.

In particular, institutional investors and corporate customers are concerned about conflicts of interest within the new-style securities firms where market-making, stockbroking, research, corporate finance, fund management and commercial banking functions all take place under one roof. Can a client be certain that investment advice is unbiased? Will a market-maker with a large position be able to resist the temptation to ask brokers to place stock with their clients?

"We will be watching very closely for possible conflicts of interest and how they are resolved," says Trevor Pullen, head of U.K. equities trading at Prudential Corp., Britain's largest institutional investor with funds under its management of more than 21.5 billion ($30 billion). He warns that if Prudential has the slightest suspicion that its fund managers are not being quoted the best price, or that there are cracks in the so-called Chinese walls between different departments in an investment house, "we will scream blue murder."

Big Bang began more as a damp squib last week when the Stock Exchange's computerized news information network, Topic, broke down just before electronic share dealings were about to start for the first time. Topic is the carrier for the newly-installed Stock Exchange Automated Quotation system, and when screens went dead, dealers had to revert to old-fashioned face-to-face business on the floor of the exchange or gather price information over the phone.

Until everything is up and running properly, fund managers admit it is difficult to judge the quality of the service they are getting. But they were not happy last week with the way some market-makers, who are committed to the prices they display on their screens, were only quoting for nominal amounts of stock, and requesting to be telephoned for bigger orders "They are defeating the object of SEAQ" complained David Malcolm, chief investment manager at Royal Insurance, one of Britain's top insurance companies with an investment portfolio of around 9 billion.

Those firms which don't start to quote prices on SEAQ for larger amounts ''will rapidly lose our business," he warned. It is the ability to undertake big block trades in U.K. equities, which should be one of the key benefits of deregulation for institutional investors.

Now that most stock exchange firms are subsidiaries of major international groups with strong capital bases, they can afford to handle much larger orders.

"If they don't, London will lose its position in the world marketplace," Mr. Malcolm said.

He is also calling for an unbundling of commissions. Although fees charged by securities firms fell sharply last week as minimum fixed commissions were abolished, Mr. Malcolm would like to see a breakdown of fees. At the moment, commissions are charged only on transactions, with research undertaken for free. Some clients would like to see the fee structure revised with, for example, commissions relating to an order cut further, and analysts' reports charged for, giving the client greater freedom of choice.

Already, the cost of dealing has dropped dramatically, and in some cases fund managers are doing business directly with market-makers, so avoiding brokers' fees altogether.

Commissions are less than half the level they were prior to Big Bang, with brokers charging around 0.2 percent on an average sized deal.

Every aspect of deregulation will scrutinized very carefully by the big fund managers and corporate clients over the coming weeks and months.

"We expect increased liquidity, lower costs and better research," Brian Garraway, deputy chairman of the U.K. conglomerate B.A.T. Industries, told the Association of Corporate Treasurers.

The level of commission which the big fund managers are prepared to pay will be very dependent on the quality of service not only in terms of how a transaction is executed but also in terms of research and advice received, says Mr. Pullen.

Many of the big institutions have also strengthened their own in-house research departments, improved computer systems and, in some cases, installed their own dealing rooms for the first time in order to take full advantage of the new markets.

"We recognize the investment that we must make to gain full benefit from the changes in market practice," Mr. Garraway noted.

It will be a while before the final verdict on Big Bang is known. But if institutional investors aren't happy with the way things are going, the highly paid men and women in the City will soon feel the shock waves.

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