A story we didn’t get the chance to cover this week was Nick Clegg’s speech to the National Liberal Club in which he gave his personal backing to an idea being developed by Lib Dem shadow business secretary John Thurso – the potential for a system of localised stock markets across Britain:
Regional stock exchanges are one way of getting vital investment directly to small and medium-sized businesses. They could give local investors – many of whom are disillusioned with the City – an opportunity to see business grow and keep jobs in their communities.
“Too many are struggling and many viable start-ups just cannot secure the finance they need. We simply can’t rely on wheeler-dealing in London’s Square Mile to keep the country afloat. It’s high time we look at innovative ways to spread growth across the country.”
Well, the idea has found early and firm favour in Wales, where the party’s economic spoksesperson Jenny Randerson has declared her support for the idea:
John Thurso, the Liberal Democrat Shadow Business Secretary, has for some time been investigating the potential for a system of localised stock markets across the United Kingdom. This is something that Wales needs to look at as a matter of urgency.
Until the 1970s, there were a number of successful “local” stock exchanges across the UK, but as the fashions of business gravitated towards big companies and away from smaller firms, these fell by the wayside. … I believe that a Welsh Stock Exchange has the potential to be far more successful, as it is more likely to tap in to thousands of people who have never played the markets but would love to invest relatively modest amounts in businesses that are close to their homes and communities.
Wales only has one FTSE 100 business and 99% of Welsh businesses are SMEs, many of whom would relish the opportunity to seek out private capital in this way. Most small firms cannot afford the costs associated with listing themselves on even the junior partners to the London Stock Exchange.
A Welsh Stock Exchange could re-create a link between local capital and local businesses, provide huge potential for small and medium sized Welsh firms to raise capital and act as stepping stones to bigger markets.
There are obviously lots of issues that need careful consideration: what the set-up expense would be, what role the Welsh and UK Governments would need to play in facilitating the development, and how any organisation would fit into current UK and international markets, but if this week has proved anything, it is that we need bold and radical ideas to transform our economy.
There will be some in politics who will dismiss this idea without even considering it. But they are usually the people who continue to hold the Welsh economy in the crippled mess it is in now.
In the coming months, I will be arguing that the Welsh Assembly Government needs to look at this proposal, in consultation with Welsh business, and examine its viability.
There are considerable hurdles to overcome, not least the fact that any scheme would need the approval of the FSA. But business and government may find that such an idea has the potential to transform the Welsh economy, and play a part in creating the conditions that Welsh businesses have been crying out for.
You can read Jenny’s article in full here.
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4 Comments
Actually, having worked on both, Birmingham and Glasgow were both functioning as trading floors until at least 1988, albeit that from 1986 effectively just places for the three local market-making firms to house their trading staff who were by then dealing off screens anyway (and had been part of one national exchange since 1973).
However, I think, depending on what they mean by “regional stock exchanges” this sounds like a thoroughly *bad* idea. There’s a good reason why the regional exchanges (including Cardiff) amalgamated with London – the bulk of the costs involved in establishing a stock exchange are to do with back office functions and high quality, reliable settlement. I’m sure, today, even Wales has a few computers, and people who can operate them in order to trade almost in any market on the planet. Markets have changed. And changed for the better in many ways – not the least of which is the potential ability to get capital in from widely geographically diverse people – on a slightly different scale, look at Kiva – that would have been impossible only a few years ago.
Liquidity is an important factor too. Having had much of their local industrial power bases decimated by nationalization and then the looming end of the local authority bond market, it made it very difficult for market-makers to operate. The generally smaller issues of local companies that continued to happen are often very illiquid (nobody is prepared to hold stock for long as a jobber/market-maker because buyers and sellers so rarely come along). You’ll end up with market principals having to have liquidity requirements on two exchanges for example – which is inefficiently expensive. By encouraging small local investors into shares they cannot shift easily if needed you create problems for both the issuing company and the small shareholder. Furthermore, for small businesses (and let’s not forget that less than a half per cent of all companies in the UK are NOT Small or Medium Enterprises so there’s nothing particularly unique about Wales’s situation) selling shares, and therefore some measure of control, is very often not the best way to raise capital anyway.
Wales is far too small to justify a market on its own – Ireland’s first attempt, the Developing Companies Market failed and they have only just set up a new one, in combination with a specific industrial sector – the oil and gas exploration sector to give it critical mass – and as an economy that is far bigger than Wales. Other than for vanity reasons then (and what is there in reality to boast about in having an insular little illiquid Stock Exchange in a world of global capital) I think this is a thoroughly anachronistic idea.
But, for all sorts of other reasons it is quite desirable to have local networks of capital (at least those that do not exclude wider networks when required); but you need to think outside the box. There are mechanisms that would allow less toxic ways of raising cpaital, such as what I and a number of people around the country are developing locally in the form of what some of us are calling “Open Capital Partnerships” which, to the outside world, might look more like unit trusts or private equity funds to which local networks of people subscribe and which then invest in local enterprises. These could help to get round the liquidity and control issues.
Personally, I would say that this is an issue that governments should keep out of. If there is a call for such things, get them going, speak to local brokers (one good thing that has emerged after the effective closure of the regional exchanges is that some of the firms that dominated those exchanges have gone on to set up much more comprehensive networks of brokers offices around the country), local chambers of commerce and so on. These, not government, should be the nexus for this sort of activity.
(I am open for consultation on these ideas if Jenny or John want to talk about it!)
Well said jock.
Do not read this line. It is here to satisfy the condition that my previous comment was deemed too short
I don’t always agree with Jock, but on this occasion I do. The LSE is primarily a market in corporate control and is often a poor alternative for raising capital. Local capital networks and similar are the way to go.
Okay, well to stretch that agreement perhaps too far, if the Principality of Wales, wants to invest the idea (bad pun I know) with some kind of national symbolism, they could consider setting up local capital networks in a complementary currency, like the WIR Economic Co-operative Circle (Video documentary) did in Switzerland in the thirties and continues very sucessfully to this day.
If we agree on that much we should go back and revisit the banking discussion…:) All this is pure libertarian “free money” stuff!
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