No more bull – let’s have our own stock exchange
Bubble — By Jenny Randerson AM on October 16, 2009 6:00 am
Investors usually only have the opportunity to put money into companies listed on big exchanges based in cities like New York
THIS weekend’s Welsh Liberal Democrat conference in Wrexham will rightly be focusing on how we can re-balance our economy while putting it on a more sustainable footing both in terms of the environment and in terms securing safe jobs.
Just this week we have seen the dark reality of the Welsh economy, with the rate at which people are losing their jobs accelerating wildly. While the rest of the UK saw a fall in the rate of unemployment, Wales now has an unemployment rate at a staggering 9.1%.
Almost every businessperson that I have talked to in recent months has told me that they are concerned about the course that the recession could take before recovery.
Likewise, GVA – the measure of how rich an area is – puts Wales at just 75% of the UK average.
It became very clear right at the start of this recession that the meltdown in global banking would have a serious and often permanent effect on Welsh companies.
Banking will never be the same again, but the effect is likely to be less heavily felt in bankers’ pay packets, and more heavily experienced by small businesses and their employees.
Since becoming the Welsh Lib Dem Shadow Economy Minister, I have been impressed by the many innovative and entrepreneurial businesses that are trying hard to succeed in the face of a crippling recession and an inactive Government.
The biggest problem that Welsh businesses are facing is a lack of credit, and this is likely to continue beyond the recession.
It is likely that for many years, businesses will not enjoy the same availability of credit as they did prior to this recession, and with support from Government limited due to the funding problems it will face, it is essential to be creative in how money can be raised.
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.
Everyone knows and understands the London Stock Exchange, but this is only really open to a tiny minority of businesses. Underneath that, there are limited options for smaller firms. The Alternative Investment Market (AIM), for example, still requires considerable expense for listing and has been characterised by businesses which made the leap to public listing too soon and have struggled to raise further capital due to the limited number of shares available.
Most big-time investors will follow the bright lights to the FTSE rather than dabble in the smaller businesses on AIM. This is despite the fact that smaller businesses are often more stable for investors.
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.
Tags: banking, Economy, Jenny Randerson, stock exchange, Welsh Liberal Democrats
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10 Comments
Seems like a good idea to me. If the banks won’t lend, and the Government won’t make FinanceWales lend, then we have to find an alternative mechanism.
Plus it would help improve Wales’ image to businesses.
So good to see this being flagged up.We had a number of Stock Exchanges in the 1800/early 1900.
It is a positive for business and shows that we are a serious trading nation.Part of what we are lacking in our economy is credibility.
Attracting business to Wales and providing a framework for progression and growth of our home grown business is to have the right infrastructure.
This could add another ring to the ladder.
We should be hearing more from Jenny Randerson
What an incredibly bad and, dare I say, irresponsible idea.
Companies float for one reason: to tap into markets for capital by exchanging their equity – and a potential share of future profits – for cash. For this to work shares need to have liquidity: a plentiful supply of people and institutions willing to buy and sell them a moment’s notice. Private individuals and local businesses simply would not provide the necessary liquidity in a Welsh stock market.
Your suggestion that a Welsh exchange could provide an opportunity for local people to play the market is highly irresponsible. Investing directly in equities is very risky form of investment. Individuals who want to invest in equities are much better advised to spread their risks by investing in a share portfolio, managed by a professional fund manager. To protect their clients’ investments fund managers invest in liquid markets.
Finally, you say that ‘banking will never be the same again’. Tosh. Banking and finance is driven by two things: fear and greed. At the moment, the fear of losing money is the overriding emotion. Therefore, the supply of credit has dried up. As signs of recovery emerge, fear will be replaced by money-making greed, and credit will flow again.
Clayton, there must be many medium-sized businesses which want to avail themselves of the facilities you describe, but who are unwilling or unable to pay the London level of fee for the privilege.
Unable – the AIM market offers a lighter and more cost effective regime for companies to IPO. Boomerang Plus plc is a an example of a successful medium-sized Welsh company that has tapped into this market.
Unwilling – you’ve lost me on that one…
An interesting post and i wish her well because Jenny Randerson is the latest to raise the prospect of a Welsh Stock Market and it will be interesting to to see what other political support it gets in Cardiff Bay or whether it will be ignored as it has been before.
As Angela El said stock exchanges have been based and operated in Wales before so what many would see as a bold idea would simply be bringing the expertise back to life in Wales, something those with influence should think about.
Not sure if you have seen this but the Telegraph has picked up on the story and written a piece
http://www.telegraph.co.uk/finance/personalfinance/investing/6345226/Give-Wales-its-own-stock-exchange.html
Jenny Randerson says that “everyone knows and understands the London Stock Exchange”. Well, she clearly doesn’t. Jenny asks that people consider her idea of a Welsh Stock Exchange before dismissing it. OK- I have considered it. I’m now going to dismiss it.
Just a few points. The London stock exchange actually has four market options- the Main Market and AIM are just the two most widely reported- that offer differing options for issuer’s- be that from a biotechnology start up, to sophisticated investment proposition to global blue chip. London also has an unrivalled profile, access to a massive pool of international investment, cutting edge technology and superior liquidity on trading services. Jenny seems to think Wales should have one of these without a scrap of evidence of how it would happen.
Jenny writes that Welsh firms cannot afford the listing fees and then produces no evidence to support this.
She also writes that a stock exchange could bridge a gap between business and capital- has she not heard of a bank, credit union, private equity house?
Yes there used to be lots of smaller exchanges across the world. Yes and Rome used to have an empire.
In the 1970s and 1980s, the world’s bigger companies got a significant appetite to be bigger still, to expand and do business on a global scale , working across countries and continents, sometimes organically, sometimes through acquisition. To achieve this required CAPITAL.
The Big Bang of 1986 was critical for all stock exchanges but particularly London in that it was able to meet this global expansion head on. The electronic trading revolution was accompanied by wave upon wave of US, French and Swiss investment banks all setting up shop and bringing with them an international investor base. Bespoke boutique stockbroking of the kind that Jenny references was rapidly replaced by a deep well of pension and investment funds from across the globe. The game had changed forever.
So exactly how does Jenny see a Wales stock exchange working? Oh that’s right- she doesn’t know.
She uses the classic politician’s all encompassing get out of Jail Free card about how we need to be bold and radical. Yes we do Jenny. There is a very serious debate to be had regarding capital markets, regulatory environments and financial responsibility on a global scale. This headline grabbing gimmick is not it.
As a proud Welshman working in capital markets in New York, advising investment funds on global M&A and IPO’s, I can’t quite fathom how ill-informed this idea really is.
Granted, radical ideas are needed in Wales to energize an economy which struggles in both good and bad times, but, like many, I won’t be holding my breath for these ideas to come from the Assembly.
Mr. Hirst’s point is well-made; there is simply not the liquidity in the Welsh economy to support such an endeavor. Volume is the key. There are not enough Welsh Plcs or Welsh businesses that would operate on the exchange, and likely not enough trading volumes to attract non-Welsh businesses to the potential of floating in Cardiff.
For investors to be attracted, a Welsh Stock Exchange would require the tightest regulation and oversight. Yet to lower the barriers to enable a critical mass of Welsh businesses to be able to float would require significantly less regulation than other exchanges (and good luck launching an exchange with lower regulations in today’s world!). In terms of practical viability, the regulatory reality kills the idea stone dead, even before the economics of supply and demand come into play.
I would estimate for every one SME I advise in preparing for IPO, I see five listed firms wanting to be taken private again. The regulations around being publicly traded devour small businesses. SME’s have to pour so much of their attention and resources into conforming they often forget to run their business. They are operating quarter to quarter, because that is what happens when you are publicly traded, and long term goals are of secondary importance to the needs of The Street (or which ever exchange you are on). The vast majority of SME’s which get listed enjoy Day 1, and then reality sets in.
I would question whether Ms Randerson understands the process that goes into launching an IPO and whether she believes the concept of an IPO is about more than “free money”. Does the opening of an exchange in Cardiff suddenly mean Wales will have a slew of businesses that are IPO-worthy? If a Welsh business is currently unable to raise the structure to float on one of the major exchanges it is more of a reflection of their IPO-worthiness, than it is the accessibility of achieving a successful IPO?
Ms Randerson is seeking a just goal, but through the wrong means. If the goal is raising capital for Welsh SME’s then this would typically be better served in the first instance through attracting investment from private/venture equity rather than public floatation. Whether or not you are a fan of private equity (and I know there are many who or not) the key question is if private equity investment hasn’t been flowing into Welsh businesses, what makes you think investment through IPO’s will?
Government-initiated and Government-brokered private investment in Wales has long been about selling the farm to overseas firms to create or protect their Welsh-based operations (and jobs). The Welsh Office, the WDA, and now the Assembly have all packaged initiatives to support inward–investment in a political, rather than economic manner, sacrificing long-term domestic growth for near-term PR, developing schedules and concessions which protect the Welsh arm of global companies, rather than promoting the growth of home-grown businesses.
Looking at the current backbone of the Welsh economy, what would we float on a Welsh Stock Exchange? Call Centres?
In a global economy, Welsh-businesses historically have not been well placed to attract investment, unless it is underpinned with significant tax-breaks and subsidy. Like it or not, a widely held view in the investment community is that Welsh business and Welsh business culture is as much built on grants and subsidy as it is on entrepreneurship. On a level playing field Welsh business are perceived to not even compete on investment attractiveness, and that has to be the critical barrier we try to overcome. Yet no politician wants to tackle that point.
This issue underpins a lot of the problems with policy-making in the Assembly. It seems it is more important for the Assembly to make a decision to promote an element of devolution, than it is for the Assembly to make the right decisions. The Assembly needs to understand that oftentimes decisions which make the most sense for Wales will not be those which promote another strand of devolution and separation from London—just because an option does, does not make it a good option. It seems that the key barrier for the Assembly between a “good” decision and a “bad” decision is the extent to which it emphasizes Wales can “go-it-alone”—a positive for chest-thumping patriotism, but a nail in the coffin of common sense and the dream of a sustainable domestic economy.
Ms Randerson should be admired for her “out-of-the-box” thinking to raise this question as a talking point, but for the good of Wales and the Welsh economy, let’s hope “Shadow” long remains part of her job title.
Wow Paul – really enjoyed that insight from someone with a definite insider perspective.
” It seems that the key barrier for the Assembly between a “good” decision and a “bad” decision is the extent to which it emphasizes Wales can “go-it-alone”—a positive for chest-thumping patriotism, but a nail in the coffin of common sense and the dream of a sustainable domestic economy.”
However i think that is as dogmatic as the people you criticise. I certainly wouldnt have the Welsh Lib Dems as committed to separating Wales, and Wales does have an opportunity through devolution to seek out newer and more effective solutions to age old problems. Many of the UK institutions and practices are of a different time, newer democracies do have a window of opportunity to innovate, which will often means having the ability to have control over those areas.
I believe that Plus Markets were looking to launch a Welsh exchange recently, but discussions with WAG didn’t really go anyway.
In theory a Welsh Exchange could have some merit, but businesses would need to have a positive story if they are going to be taken seriously by investors.
And any Welsh Exchange would be an off shot of the London Stock Exchange and fees would not necessarily be cheaper.
What Wales could really do with is having a nominated adviser[s] based in Cardiff that could take high growth potential firms through the IPO process, whether in London or Cardiff.
Enjoying this discussion around other means of providing growth capital to Welsh businesses.