There is nothing like a bit of post-budget controversy to get people talking. While the UK chancellors' endeavours to transform the London Stock Exchange into the "Nasdaq of Europe" are commendable, it is imperative that all politicians tread carefully when commenting on financial institutions infrastructures accountable to those trading on them, not elected officials.
Advocating for policies to stimulate market activity is one thing, but maintaining neutrality and avoiding an appearance of bias is equally vital.
It is heartening to witness politicians like Jeremy Hunt taking an active interest in fostering capital markets, as evidenced by his budget proposals last week. Politicians have tried and failed to take an interest in the financial markets but often not successfully. The trouble lies in articulating these intentions without inadvertently discouraging competition or creating an awkward atmosphere where certain exchanges are perceived as more privileged than others.
Political leaders, particularly those responsible for fiscal policy, must be cautious not to inadvertently hinder competition or convey an anti-competitive stance. After all, the success of capital markets relies on fair play and a level playing field. When politicians make public statements, especially about national exchanges, there is a risk of influencing market sentiment and potentially creating an uneven landscape.
The London Stock Exchange isn’t the only exchange group contributing taxes to the UK treasury coffers. It is, therefore, paramount for policymakers to refrain from expressions that could be construed as favouritism.
Political neutrality is even more imperative given how ambitious Hunt’s plans appear to be. His policy to fortify the nation's capital markets by allowing private firms to have their shares traded on exchanges is certainly bold. The proposal, dubbed the Private Intermittent Securities and Capital Exchange System (Pisces), allows investors to partially sell down their stake in private firms on limited days per year.
The policy represents a potentially significant step towards injecting vitality into the UK capital markets. However, such innovations are not without hurdles to overcome. One of the primary challenges is striking the right balance between flexibility for investors and maintaining market stability.
Allowing intermittent trading of private firm shares could introduce volatility, especially on the designated days for selling stakes. Policymakers need to meticulously design regulations that prevent market disruptions while providing the intended benefits of increased liquidity and accessibility.
Another potential pitfall is the potential reluctance of private firms to embrace the new system. Change often faces resistance, and businesses may be hesitant to navigate the uncharted waters of intermittent securities trading. To overcome this, the government must engage in a thorough consultation process with industry stakeholders right across Europe, not just the UK.
Seeking their input and addressing concerns is the only way to ensure a smooth transition for the policy.
Collaboration between government and exchanges is pivotal in overcoming these challenges. Exchanges can play a crucial role in educating market participants about the benefits of Pisces and addressing their apprehensions. Simultaneously, policymakers must listen to the insights and expertise of financial market infrastructure leaders, fostering an environment of cooperation rather than imposition.
Furthermore, the chancellor should also consider creating incentives for private firms to participate in the Pisces system. Tax incentives, reduced regulatory burdens, or other forms of support can encourage businesses to take advantage of the opportunity, thereby driving the success of the initiative.
Hunt’s policy intentions are commendable, but his discourse around wanting to position the London Stock Exchange as the "Nasdaq of Europe" is misguided. A much more delicate balancing act is required in his communications in order not to alienate other exchange groups with a major presence in the UK.
The Pisces initiative holds promise, but its success hinges on careful regulation, industry collaboration, and proactive measures to overcome inevitable barriers. By encouraging an environment of cooperation, not favouritism, the government and exchanges can work hand in hand to ensure the UK's capital markets thrive in an increasingly dynamic global landscape.
Tim Focas is Head of Capital Markets at Aspectus
