Newspaper article The Evening Standard (London, England)

Set AIM Free from This Stock Exchange Deal; City Comment

Newspaper article The Evening Standard (London, England)

Set AIM Free from This Stock Exchange Deal; City Comment

Article excerpt

Byline: Anthony Hilton

STOCK exchanges weren't invented so that a load of hedge fund managers in Geneva could take a punt on the success or otherwise of Abenomics in Japan or Brexit in London, or the likelihood of Donald Trump getting elected in the US.

It was never the intention or within the imagination of the founding fathers of these exchanges that we would arrive at a world in which overwhelming amounts of global capital would switch on a daily or even hourly basis between equities and bonds, in what is known as a risk-on/risk-off trade, depending on whether the current mood about the global economy was positive or negative.

Exchanges were developed to make it easier to move money from where it was to where it was needed from savers looking for somewhere to invest their capital to entrepreneurs looking for finance to start or develop their businesses. The experience thus gained created an understanding that a dynamic properly functioning stock exchange has a large part to play in creating a dynamically functioning economy whose ownership is concentrated not in the hands of an elite but throughout the wider population.

This original intention is too often forgotten these days, not least by many of those working in the business. The primary capital-raising function of exchanges has long since been dwarfed by what one should think of as the second-hand market the buying and selling of existing assets. This tail not only wags the dog, it has almost become the dog.

It is instructive that in all the words written about the proposed merger, announced last week, of the London Stock Exchange and Deutsche Borse, its German equivalent, the comment has been entirely about the synergies to come from combining the activities of the two groups in financial futures and other derivatives, clearing, netting, index products and so on, the better for the big international fund managers to deploy the capital under their control. Cash equity markets, the original purpose of the exchanges, barely gets a mention.

This is in stark contrast with what happened on the two occasions, one each side of the turn of the millennium, when this Anglo-German combination was previously proposed. A major focus of debate then was whether the combined business would continue to meet the domestic needs of British companies seeking capital. The consensus view, particularly among those brokers and fund managers who focused on the needs of small to middle-sized companies, was that it would not.

Of course, things were different then because back in those days the leading investment banks, the big accountancy and law firms, the broking community and the media all took AIM seriously. They appreciated the role it and its predecessor, the Unlisted Securities Market, played as a provider of capital and a nursery for growing business. …

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