At a conference in December 2009, Paul Volcker, ex Federal Reserve chairman, said: “I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information. A few years ago I happened to be at a conference of business people, not financial people, and I was making a presentation. The conference was being addressed by a very vigorous young investment banker from London who was explaining to all these older executives how their companies would be dust if they did not realise the joys of financial innovation and financial engineering, and that they had better get with it.
“I was listening to this and I found myself sitting next to one of the inventors of financial engineering who I did not know, but I knew who he was and that he had won a Nobel Prize, and I nudged him and asked what all the financial engineering does for the economy and what it does for productivity. Much to my surprise he leaned over and whispered in my ear that it does nothing. I asked him what it did do and he said that it moves around the rents in the financial system and besides that it was a lot of intellectual fun.”
When the London Stock Exchange (LSE) falls into the arms of Deutsche Borse or ICE (The Intercontinental Exchange that owns the New York Stock Exchange, etc), approaching three quarters of the merged business revenue will come from serving the derivative markets that Volcker refers to above. Only one quarter will come from cash equity markets, meaning equities bought and sold through their exchanges and of this AIM will provide an almost microscopic amount of revenue.
I make no comment on the efficacy of the LSE deciding to annoy the inestimable Volcker even further but only to note it is a business and like any business it will go where it believes tit can make the most profit. This being the case, you cannot get away from the fact that these exchanges clearly see providing the facilities to list and trade equities as of ever diminishing importance. It doesnt take much of a mental leap to realise at the monthly board meetings of the directors of MegaExchange, AIM will never be given any agenda airtime at all.
It is not difficult to work out how this will make the, by then, almost invisible AIM staff feel. In a word, lousy. The capable staff will leave and then it won’t be long before that whole market withers on the vine.
Read more about the stock exchange:
- LSE merger arriving at great time for under pressure David Cameron
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- Why family businesses can IPO and still maintain culture and tradition
AIM is of no consequence to this brave new world of global exchanges but it is of significance and importance to small company capital formation. Last year AIM marked its 20th anniversary and over that time it has raised 90bn of equity for its companies. This is a fantastic achievement and one that must not be ignored by those charged with the task of examining proposed tie ups between the LSE, Deutsche Borse, ICE, or indeed any other exchange.
I would bet a pound to a pinch of salt that right now 95 per cent of companies on AIM have not thought about the consequences of what is written here and most of AIMs advisor community hasnt yet woken up either. With the honourable exception of Anthony Hilton in last weeks Evening Standard, none of the major media outlets have looked this issue. Add this all up and it is extremely unlikely it has come to the attention of the relevant government ministries, meaning the Treasury and the BIS. This state of affairs cannot be allowed to continue.
The solution is obvious. AIM must be set free and this can of course be achieved by our Government making it a condition of any LSE mega merger that AIM is carved out as an independent entity. Then it can attract the right calibre of staff to ensure a flourishing future for that vital small company equity capital raising in the UK. Then it can be at the forefront of new developments such as the possibility of bringing crowdfunding into AIM stock issues. In reality the MegaExchange alternative will result in the closure of AIM.
What can you do You should write to your MP, Sajid Javid minister of state at the BIS, and to Harriet Baldwin at the Treasury (she is the minister responsible for the City) and tell them that unless AIM is set free this country will lose a much needed, well established, smaller company resource. The City Grump will do his best but he needs your help!
Let me leave the last word to Paul Volcker, the wise head who served five US Presidents: The most important financial innovation that I have seen the past 20 years is the automatic teller machine, that really helps people and prevents visits to the bank and it is a real convenience. How many other innovations can you tell me of that have been as important to the individual as the automatic teller machine, which is more of a mechanical innovation than a financial one
“I have found very little evidence that vast amounts of innovation in financial markets in recent years has had a visible effect on the productivity of the economy, maybe you can show me that I am wrong .
If a company wants to sell stock shares to the general public, it conducts an IPO. But it takes months of preparation and, if done wrong, will lead you to retract your IPO. So here are ten steps to IPO readiness.