Real Issue for Stock Exchanges; City Comment

The Evening Standard (London, England), March 30, 2005 | Go to article overview

Real Issue for Stock Exchanges; City Comment


Byline: ANTHONY HILTON

A READER once sent me an analysis of the FTSE 100 companies which showed that 80% of them were either subject to the whim of a regulator or dependent on Government contracts for a significant part of their business - which made for an interesting insight into the reality of what we happily continue to call a free enterprise system.

But it also makes it all the more astonishing that having privatised water, gas, electricity telecommunications, rail and air travel and made sure that each had a regulator to guard the consumer interest against the power of these new private-sector monopolies, no one thought it appropriate to impose regulatory oversight on the stock exchanges in London, Paris and Frankfurt when they demutualised in the 1990s.

Perhaps it was the mood of the time, with the new millennium approaching and the dot com bubble beginning to get into its stride, that people thought everything could be left to the market. For whatever reason, it turned out to be a glaring omission because stock exchanges do have a public interest dimension.

An efficient stock market is an essential part of an efficient capitalist-system, which is why the fate of stock exchanges is too important to be left entirely to the whims of profit-maximising management on one hand or only temporarily engaged hedge funds on the other.

The entire country has a stake in the outcome.

Chris Gibson Smith, chairman of the London Stock Exchange, would probably agree that while the London exchange is 80% Plc, it is also 20% public interest. Certainly the implication of his public pronouncements during the bid process with Deutsche Borse, and the emphasis he has put on safeguarding the customer interest and preserving the City of London as Europe's financial centre, show an awareness of an interest that goes well beyond the maximising of profit for his shareholders.

It is also that 20% which has made - and indeed continues to make - the Treasury very nervous about the possibility of an auction for the Exchange.

It has been mildly embarrassed to discover with all these proposed bids popping off, that there is nothing it can do about it, although it is supposed to be responsible for the City. No doubt it is very relieved that the Office of Fair Trading got it off the hook with yesterday's referral of the proposals to the Competition Commission. …

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