There are many prerequisites for a nation to prosper independently. The SNP and others are quick to list the resources, law-making powers and assets needed. It is a puzzle, therefore, that reestablishing a Scottish stock exchange does not feature in their current priorities as a symbol of a Scotland open for business.
The last Scottish stock exchange closed in Glasgow in 1974. The original building had floors dedicated to Aberdeen, Dundee and Edinburgh. All had their versions of local stock exchanges before consolidation and eventual closure as trading moved first to London and then into London online. The online element opens up new Scottish possibilities.
The idea of re-establishing a Scottish stock exchange was referenced in one of the Montrose Papers I published last month. I wondered whether an anti-business mindset had influenced this gap in SNP and Labour thinking, a comment which has attracted some comment and pushback.
I am inspired by the observation that Coutts bank was founded in the small North East town of Montrose, presumably to facilitate the mix of 18th century agricultural import and export to and from the Baltics, Scandinavia, the Netherlands and Virginia. Investments were made in ships, cargos and share models (and quite a bit of smuggling). which would have seemed a huge enterprise for a small town then. But they made it happen and subsequently exported the Coutts insights to London.
So why not again on a Scottish stock exchange stage as we pivot to new kinds of business in energy, agriculture, food production, creative industries, tourism, education and the many other clusters of innovation in Scotland not yet on the international stock market radar?
The consolidation of stock exchanges across the UK into London was for perfectly rational and practical reasons.
The pool of investors, private and pension funds in and coming through London was larger. The greater liquidity was key for launching investment opportunities to fund growth, especially for the underwriters but also for trading stocks, getting in and out when cash was needed or lending shares through shorting models.
The amounts needed for new and expanding business were greater than the small Scottish exchanges could bring in or mobilise. The local underwriters were already reaching out to London for backing. Specialist firms were consolidating. The strong investment houses based in Edinburgh were strong because they were working with and often shaping new patterns of investment funds for pensions through the London Exchange.
Facetime in the pre internet 1970s with investors, underwriters, banks, insurers and lawyers – all the paraphernalia necessary for an increasingly regulated investment prospectus – were in, literally, a square mile in London.
Thus it seemed inevitable. But something was lost. You need a very long lens to see and hear from interesting new businesses growing in the North East of Scotland. How often have you heard the surprised noises when people are told of the online gaming giant Grand Theft Auto, spun out of Dundee’s combination of cartoon graphics for the Beano and clever programmers, all facilitated by Abertay University.
What purpose would a Scottish stock exchange perform today that can’t done adequately and perhaps better by the London Stock Exchange? There is plenty of liquidity around for investment. Professional service organisations like lawyers and accountants provide channels to investment sources. A whole new breed of family fund houses roam around looking for investment opportunities, better than tracking indexes. In any case the whole process has gone online, traded by high-speed computing and no doubt by AI.
Is this proposal guilty of trying to solve a problem that does not exist?
Not quite. It is true that there is a huge pool of finance out there, some of it made bigger by the 70 per cent backup guarantees government gave to lenders (lenders mind, not borrowers) during the Covid and has kept running since. I have been in business for over 30 years and have swum in that pool and I am afraid it is also full of sharks.
Face-to-face is making a comeback, even in banking, which led the decades-long retreat from face-to-face branches on the high street.
To general amazement Barclays has just announced it is opening some new branches. Big London city houses are dragging or coercing large numbers of execs “working from home” on investment, legal, banking and insurance back into not just the office but to the people-to-people network that is the “square mile” and now also Canary Warf.
Barclays’ new branches are designed not for old cash counters but for “complex financial support” on a face-to-face basis.
How did those Montrose adventurers and entrepreneurs raise money in the 18th Century before stock exchanges? It would have been through family networks, church connections, trusted networks like guilds, or the Masons and the Rotary Club, where face-to-face meetings ensured trust and social accountability – trust is key.
As the net widened and share sales or offers grew it soon became clear that some rules and supervision of behaviour were needed if a new level of trust for investments was to work. Stock exchanges provided that next level of trust and were a key element in the roaring growth of capital distribution, especially as the new wall of money in pension funds grew and could be invested in stocks (which were thought too risky until the 1950s).
Which is also a reminder that a lot of the money invested is our money through our pensions. The Labour government is pressing for more investment from these funds towards national infrastructure, as happens in other countries. How does it help our children that our pension money is not supporting local and national economic growth?
This is not just an idea for Scotland. In the USA, Texas has opened a stock exchange instead of everything going through New York. Manchester had a Stock exchange until 1979, which might be an idea for Andy Burnham’s No10 North to explore.
How might this work? The government could start with a signature building again in Glasgow or Edinburgh, with desks for the top investment advisers and banks, with lawyers easily accessible, staffed by bright young corporates who would otherwise be working from home. All trusted advisors with corporate reputation behind them.
Run regular Dragon’s Den investor sessions and sector roundtables, recorded and circulated to investors. Importantly, have regular sessions when UK-wide and London investors come to Scotland. A place where any entrepreneur can walk in for a coffee to explore the options and have a choice of trusted providers. The sceptics point out that would just be a big coffee house. Which is exactly how Lloyds started. It’s time to make a grand statement and re-open a Scottish stock exchange.
Neil Stewart is the founder of the Narrowcast Media Group and former political secretary to the Leader of the Labour Party Neil Kinnock.