Scottish stock exchange back on the launch-pad

It may be an old idea run ragged round the tracks. But when it comes freshly presented, with new faces and practical proposals for implementation, it merits another look.

Thus it is with plans to revive a Scottish stock exchange after 45 years. Scotland, with an illustrious history of investment management, can fairly lay claim to merit a stock exchange of its own, marrying the requirements of fledgling companies looking for capital and investors wishing to support Scottish entrepreneurialism.

How did this dream ever die? Companies with transferable shares had existed in Scotland since the 17th century and five stock exchanges persisted across Scotland in the 1960s, enabling Scottish investors to directly fund business opportunities. But, like the rest of the UK’S trading floors outside the capital, all were merged to create the London Stock Exchange. The Scottish Stock Exchange, based in Glasgow, closed in 1973. Some said its members never recovered from the shock of the city council renaming its location just off George Square to Nelson Mandela Place. Members petitioned unsuccessfully to have the nameplate removed from its wall as it dealt a deathly blow to its credibility.

Now plans for a Scottish stock exchange have taken a practical step forward through an initiative by Bourse Scot called Project Heather. And it has secured a partnership deal with Euronext, one of the world’s largest stock exchange operators. It is the leading pan-european exchange covering Belgium, France, Ireland, the Netherlands, Portugal and the UK.

Bourse Scot expects to launch a Scottish exchange in the second quarter of 2019, subject to approval from the Financial Conduct Authority. Once established, it would provide a new route for Scottish businesses and organisations to raise funding. It would, say supporters, complement the already, or soon-to-be, established government-backed initiatives such as the Scottish Investment Bank, Scottish Enterprise funding and the Scottish National Investment Bank.

Project Heather is led by experienced broker and entrepreneur Tomás Carruthers. The inspirational firepower has come from the Snp-sympathetic Momentous Change Ltd, with three prominent backers: Roger Mullin, business consultant and honorary professor at the University of Stirling Management School; John Millar, 24 years as portfolio manager and now doctoral researcher at the University of Edinburgh Business School; and Michelle Thomson, financial and business services executive and former SNP MSP.

Together they have co-authored a wellresearched and presented document putting the case for a Scottish exchange. Arguably the best-argued section is on venture capital and private equity. UK venture capitalists have invested in 129 Scottish companies with an aggregate turnover of more than £4 billion. Why not a Scottish exchange to facilitate capital raising, secure a higher profile and build a following of local and experienced finance advisers and experts? Potential listers would also be required to show social and environmental impacts, such as the new Global Sustainability Trust launched by Standardlife Aberdeen. The team has had talks with Scottish Enterprise to secure Regional Selective Assistance funding.

It’s a seductive pitch – but with formidable problems. The Scottish Stock Exchange existed in a world before iphones, digital technology, desktop screens and computer trading. What is the point of a local exchange when technology has collapsed the barrier of distance and rendered geography irrelevant?

It is hard to see why, from an investor view, trading on a local exchange would be better than trading on the LSE, while companies would prefer to reach a wider audience through a quotation on AIM.

There is also the danger, aired by Jamie Matheson of Brewin Dolphin, that a Scottish exchange would be seen as a fledgling market. “I suspect”, he warned, “the local focus would only get companies so far. As companies became successful, they might be dual listed, (listing on the LSE as well) and that would strangle the local market.”

Given increasing competition from alternative exchanges, a Scottish exchange might have to be subsidised. That would certainly stick in the craw: public resources would surely be better devoted to encouraging a vibrant venture capital and private equity industry in Scotland.

There would also need to be an additional layer of regulatory oversight. Jazz hands for that? Not many. For these reasons, “Nelson Mandela Place” looks safe for now.