Regional Stock Exchanges will
generate wealth
PRESS RELEASE FROM THE INSTITUTE OF WELSH AFFAIRS
For immediate release
An important contribution to raising gdp in poorer regions could be
made through the revival of local money-raising institutions, a new
report argues.
Regional stock exchanges that made it possible for local companies
to raise finance needed for expansion closer to home could help to
close the wealth gap between richer and poorer parts of the UK.
This is the conclusion of a report by Cardiff-based economic research
group, Robert Huggins Associates, which calls for detailed studies
to be made into the creation of exchanges in Cardiff and other centres.
The architects of a Wales Stock Exchange, the report further suggests,
could be the Welsh Development Agency subsidiary, Finance Wales, which
already has an important role in procuring public and private sector
funding for Welsh companies.
The study, written for the Institute of Welsh Affairs, the leading
independent Welsh think-tank, argues that the London Stock Exchange
operates in a largely international environment, with a strong bias
towards larger stocks and big institutional investors and trades.
This has resulted in small and medium sized companies being largely
ignored or overlooked, despite innovations such as the LSE’s
own alternative Investment Market and the independent Ofex.
Fund managers, too, only wish to invest in large companies, usually
with a market capitalisation in excess of £1bn, with the result
that many smaller members of the LSE lack the clout required to make
the investment deals they require.
Another obstacle in the way of smaller companies wishing to list on
the LSE has been the development of a complex and strict regulatory
system, necessary to handle the big corporations but imposing excessive
burdens in terms of time and cost on smaller businesses. With the
average costs of an initial public offering (IPO) on either the LSE
or Aim estimated at £500,000 the cost of listing is prohibitive
for many middle market companies.”
As a result in the regions, where many of the firms are small or medium
sized – the ability of companies to find finance for growth
- the equity gap has increased, with the further consequence that
such firms become prey to involuntary acquisition by bigger outside
groups.
High levels of dependence in these regions on foreign direct investment
becomes another problem, impeding the ability of these regions to
become sufficiently involved in accessing stock markets, as foreign
owned businesses becomes lead actors within business and economic
decision-making.
Regional stock exchanges could help to break this vicious cycle, playing
a key role in championing smaller firms indigenous to the region,
providing an ongoing support mechanism, working predominantly with
the indigenous banking and brokerage sectors, and encouraging local
ownership of equity, thereby making a significant long-term contribution
to the economic growth of both the regions in which they are situated
and the UK as a whole.
“Although we are continuing to witness the devolution of certain
political powers to the more excluded areas of the UK, an equitable
UK economy can only be generated through the decentralisation of the
nation’s financial and business assets. At present the majority
of these assets and, therefore, the decision-making processes determining
their future – reside in London and the south east, leaving
large tracts of the UK as the low value-added servicing grounds of
these assets. If knowledge exchange, transfer and interaction occur
most naturally and effectively between actors that are relatively
proximate in geographic terms, then it follows that the finance required
to commercially exploit these activities should also ideally be made
available through geographically consistent channels.”
The authors of the report, Robert Huggins, Nia Emlyn-Jones, and Jonathan
Day, admit there is an element of back to the future in their proposal
– at the turn of the 19th and 20th centuries there were 22 regional
exchanges in Britain, including Cardiff and Swansea, many of which
survived to the 1970s – they argue that their proposals fit
in with current interest in the development of regional “cluster
building” of similar types of activity, and the creation of
localised centres of knowledge-based activities. Specialised industrial
districts themselves were a feature of the business scene 100 years
ago and regional stock exchanges played a key part in the success
of the British regional economy.
Regional stock exchanges could also help to rectify a situation in
which the majority of advisers to LSE-listed firms are based in London,
adding to the imbalance of information available in the south east
and the peripheral areas.
“As regional exchanges develop, so too should the concentration
of feeder services, such as research agencies and financial and business
advisory services. A regional stock exchange should become the institutional
trigger for the establishment of a finance and business cluster, creating
quality employment within these sectors. In general we find that those
regions and cities around the world possessing a stock exchange have
between 25 per cent and 50 per cent more employment in the finance
and business service sector than their national averages.
Ultimately, the report suggests that by increasing the number of firms
within a particular region, such as Wales, that secures investment
through the public offering of shares, there can be a profound effect
on gross domestic product, a measure in which Wales continues to fall
behind the UK average. With 30 more listed companies it is estimated
Wales could add four points to its gdp bringing it to around 84 per
cent of the UK figure and an additional 60 companies would bring a
gain of nine points.
The authors argue that at the very least there should now be a feasibility
and planning study to determine in each region including Wales whether
there is sufficient potential to develop a regional stock exchange
and that if so such an institution should be given the freedom to
evolve its status and role.
For further information contact:
Robert Huggins, Robert Huggins Associates. Tel:029 2066 2554 or e-mail
info@HugginsAssociates.com
Rhys David, Institute of Welsh Affairs, Tel:029 2057 3942. or e-mail
rhysdavid@iwa.org.uk
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