Dear Mr Cameron
The old Stock Exchange Members book of 1973-74 (I’m sure your family still have a copy in your possession after your late father’s exploits at Panmure Gordon & Co) has been taken from the book shelf and I’m just reminding myself of the once great market that my family were part of since 1872. You see it was a free thinking market made up primarily of people who looked after their clients (there were no account numbers or client agreements in those days), understood their roles in the support of UK business, invested freely without hindrance on instant calculating decisions (these were called hunches), gleaned that the clients came first, took for granted that investee companies behaved responsibly at all times (the rogues gallery was much smaller back then I think), calculated that balance sheets and p&l accounts were properly audited, assumed that published reports and accounts were transparent, took full responsibility for their affairs as well as those of their clients, assumed full personal UNLIMITED liability for their affairs as well as their clients and honoured ALL commitments to clients and market counterparts, took pride in the exchange that they were part of and above all enjoyed themselves in a friendly market that had the decency to look after fallen brethren through committed benevolence. DICTUM MEUM PACTUM was practiced rather than taught. Integrity at all times was paramount and could NOT be bought.
Well as you can imagine I’m not exactly ecstatic at the current exchange that your government presides over.
Today bankers, hedgies and most brokers take NO responsibility for their actions (often aided and abetted by compliance personnel whose pockets they often control), never take a financial hit for malpractice or obtuse client losses, treat shareholders with utter contempt and incredibly are still committed to a bonus culture despite the misgivings of those who feel strongly about the uneven playing field in the workplace.
More important than any of the above though, as well as the current behaviour of the above alongside the FSA and CISI (APCIMS are the only ones who can hold their heads up at these difficult times) the most extraordinary sideshow has been the utter belligerence of the London Stock Exchange itself. On the face of it as a PLC it has done extraordinary well but sadly as an effective functioning exchange for securities representing UK PLC’s, capital raising, etc the exchange is failing daily (just look at broker volumes). There are two primary causes for this. Firstly the exchange is profiteering at the expense of investors and secondly the regulatory experiment is failing at an alarming rate. What is deeply concerning me is that virtually no-one can see this. But then again, not many politicians, regulators nor indeed practitioners in the dark art and science of capital markets spotted the 2007/2008 banking crisis either. There is a secret ingredient as Chelsea FC found out by chance over the weekend. Despite countless highly paid managers their success evolved through something which one cannot find in a cv or through a qualification. No it’s NOT hard work but this always helps as Mr Osborne has correctly pointed out. No, the secret ingredient is “HEART” Mr. Cameron.
It is the very heart of the exchange that concerns me. It is not ticking as it should and if there are NOT structural changes made to the exchange soon I fear that the exchange itself may suffer a serious heart attack. One of the unnerving aspects of your coalition and indeed the opposition (the culprits perhaps although the seeds were sown as far back as the 80’s) is that much emphasis is placed on jobs and support given to big business BUT I see little assistance given to sole traders, small micro-partnerships and SME’s. Red tape is rife and crucifying entrepreneurship everywhere and the evidence supports my belief that this started inside our very exchange largely thanks to over-regulation (TSA, SFA and now FSA towards FCA already known as “fuCA” and other hydras) since 1986. One can use the acorns to oak tree analogies till one’s blue in the face but acorns everywhere are STILL being crushed by the weight of red tape, regulation, lack of investment and a host of other reasons.
It’s interesting to note that in the 1973-1974 members book that there were 100’s of broking firms as well as considerable numbers of jobbing firms supported by around 3,000+ members. Most of the firms supported private investors whilst maybe only a dozen or so focused their business models on the corporate market. Since ‘Big Bang’ the regulators have ostensibly calved up the private end of the market and evolved their very existence on governmental support and cosy relationships with the investment banks. I doubt that banks have ever really had the interest of business at ‘heart’ as their remit has been profit rather than job creativity. Conversely the core parts of the market have been reliant on private enterprise and with it private investment supported by a spiders web force of private brokers maintaining good working relationships with investors.
Two things have engineered the destruction of these relationships. The first of course has been the development of the technology supporting business and industry (the internet); we all have to learn to live with the internet. The second has been (over) regulation which has broken the camels back of personal and private investing towards a mangled universe of faceless wealth managers who often than not support funds rather than actual companies. It isn’t just coincidence that the AIM and Plus markets are suffering from low volumes and low interest. Long only institutions and hedge funds have no interest in supporting businesses these days and use the liquidity argument when challenged about this. Liquidity is really just a function of the market constituents and if the exchange and regulator takes away the opportunity then the market cannot support itself.
It’s my belief that the government should open a debate, even an enquiry (although I doubt that practitioners such as myself would ever get invited to attend) into this BUT much worse is the FSA doctrine that is called mildly ‘The Retail Distribution Review’. Thousands of brokers will be wiped out by this (including myself) whilst the new age survivors (mainly young inexperienced personnel who have questionable degrees and pointless qualifications directed around regulation) will be drawn towards funds, ETFs etc. Importantly aged investors will find it difficult dealing with these new age brokers. The average age of brokers has dramatically shifted since 1980 when I joined a private firm. Most were aged militaries and I would say the good ones were often 50+. Today I am 55 and considered ancient and out of touch with regulation. This I may be but frankly I care more about client relationships and markets than what regulators think. It’s rather like driving a motor vehicle and having the steering wheel taken away these days. Compliance have the wheel and the new SUITABILITY rules and redefining of RISK are so way beyond the mark that there’s every chance that more business will be driven away from UK via the internet towards softer compliance regimes.
As you can gather I dislike the regime that is at the heart of the problem. It seems that surgery is required or even a heart replacement.
My solution is simply either to refranchise the LSE (from a PLC) to private members or even better to pass an Act of Parliament allowing for a new Unlimited Liability Exchange to be created and developed by private brokers without the hindrance of external regulation (that is no FCA and no interference from Europe). Many have suggested something similar in the past. Now is the time for leadership Mr. Cameron. UK PLC needs new direction and an exchange that supports business and industry. An exchange with “Heart” and common sense will do wonders for future generations as past generations can testify. The current exchange may be sufficient for overseas business but it is not functioning in the interests of British taxpayers or workers.
Incidentally I’m still awaiting your response to my previous communications regarding FSA and RDR. I hope that you might have the decency this time to respond to my concerns.