Episode 18. How to build a stock exchange (at last)

In this, the podcast’s last episode, I finally, absolutely, and almost completely definitively, tell you how to build a stock exchange (and who invented unicorns).


‘It had been a bad trip … fast and wild in some moments, slow and dirty in others, but on balance it looked like a bummer. On my way back to San Francisco, I tried to compose a fitting epitaph. I wanted something original, but there was no escaping the echo of Mistah Kurtz’ final words from the Heart of Darkness: ‘The horror! The horror! … Exterminate all the brutes!’

That’s Hunter S Thompson finishing up the tale of his long encounter with the San Francisco Hells Angels. In this classic bit of gonzo ethnography Thompson has been in the thick of it, drinking hard and hitting the drugs, riding loud bikes too quickly, and generally being a nuisance – although as he is quick enough to point out, the real nuisance came not from the bikers but from more refined figures who dropped in on the party. The unnamed poet who threw a bin under the wheels of a passing bus, for example.

Social theorist Eve Chiapello tells us that capitalism feeds off critique, and the ill-behaved gonzo has been absorbed into the rhetoric of business.[1] Christopher Locke, the author of the 2001 hit business book ‘Gonzo Marketing’ is, like all good marketers, a master of the un-ironic pastiche: ‘wandering barefoot on the Lower East side of New York, over $1000 cash in my pocket, looking to score… Also in my pocket, the tarot …I went into The Eatery on Second Avenue and my waitress saw the cards…I had just dropped another tab and had little time left…but she sat with me…‘You have two Magicians,’ she said’. As Martin Hirst, from whom I’ve borrowed this choice quotation, points out, Locke’s prose is Thompson with Easton Ellis namedropping thrown in.[2] Still, the book sold and the strapline, ‘winning through worst practices’ epitomises everything that’s wrong with contemporary business: the acceptance of winner-takes-all competition and the seductive notion that it somehow could be cool to get ahead by means that dance around the edge of acceptable. Finance is not immune from this aesthetic: the cinematic portrayal of finance as lubricated by booze, cocaine and trips to brothels marked down as expenses, in the quasi-autobiography of Jordan Belfort’s Wolf of Wall Street or the post-crash analysis of Inside Job.

What is gonzo anyway? Something with a bit more integrity than barefoot and stoned in Manhattan, and the drugs seem to be peripheral. Rather, it’s an intimate, first person take that emphasises spontaneity and raw authenticity over form and polish, where ‘deliberate derangement of the senses… de-familiarises reality, opening the door to paradoxically clearer perceptions, a twisted perspective..’ So says literary scholar Jason Mosser.[3] What’s more, the spontaneity turns out to be artifice: Thompson’s prose is a result of a strange collaborative production involving his own demented writing and inability to meet a deadline, tearing pages out of the notebook and faxing them in; the transcribing typist making whatever sense she could out of what she received; editors and copywriters doing their best. Sociologist Jesse Wozniak calls for ‘gonzo sociology’, an ‘immersive, reflexive methodology which eschews rigidity and formulaic design in favour of innovative and imaginative research on places and peoples ignored by the academy’.[4] Gonzo academic is never going to be that gonzo: it’s rather a reaction against the ‘staid practices of the field’ (in Wozniak’s words). We can permit ourselves a certain licence – an element of reflection, of the personal, a struggle to find a voice that speaks more widely than the dry prose of the academic journal. So I have told you of breakfast in the Cadogan Hotel with the global-heavies, of Sextus’ croquet and business angels, of how one family’s world changed and reflected the shape of London’s markets across three generations, and how my own experiences took me briefly into their world. Rather than the pastiche of the two Magicians, an honest telling of our own stories is the best way we have of finding our moral compass in this complicated world.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe and I am a sociologist interested in the world of finance. I teach and research at the University of St Andrews in Scotland, and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. As well as these, I’ve been looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story.

Here’s the thing.

Financial markets rule our world. Governments tremble at their feet. In the very first episode, recorded early last year, I set out how financial markets are a linchpin of inequality, deeply complicit in the approaching environmental catastrophe, the wellspring of current populist politics, and goodness knows what else. I have spent the last seventeen episodes following the threads of financial markets through their history, all to answer the question: why do we have stock markets and what are they for?

The answer, as best as I have it, is that they just are. They co-evolved with modernity, and with the nation states that we know today; as globalization transcended the nation states, so financial markets spread their electronic wings and became global tapestries of transactions, circling the globe with the sun: Tokyo, Frankfurt, London, New York..

Look at the London Stock Exchange.[5] This venerable institution, now a global provider of exchange services, can trace its history back to 1698, when John Castaing began publishing a list of commodity and foreign exchange prices to a loose gathering of speculators who bought and sold stock in the coffee houses of Exchange Alley. They traded shares in the new joint-stock corporations, the Bank of England, the East India Company, the infamous South Sea Company and the not nearly as infamous as it should be Royal Africa Company. These corporations acted as quasi-governmental organisations to which the English government delegated the profitable task of pillaging the globe in the name of Empire. They operated under licence from the English crown, backed by the might of the English navy. In return they offered money. The corporations lent the English government huge sums, marking these down as assets on their balance sheet. They then issued stock, raising money from investors and in doing so made a link between the pockets of the merchants and the empty coffers of the Treasury.

Trading in London has continued uninterrupted since that time, mirroring and supporting first empire, then globalization. In the nineteenth century as Britain’s dominance extended the exchange’s members developed specialisms in the Far East, in minerals, in the woefully named kaffir market where the stocks of South Africa and then Rhodesia were traded.

When the exchange was turned upside down in the Big Bang of 1986, with trading simultaneously deregulated, re-regulated and pushed onto screens, this wasn’t an out of the blue decision. It was part and parcel of Margaret Thatcher’s brave new world of free markets, pushed on by ideology, by the global capital by then flowing through London and by the technological ambitions of the engineers slowly taking over the Exchange from inside. Today’s global exchanges are the seemingly inevitable result of a confluence between politics, economic theory, and technological advances.

We can say the same of Chicago. We saw how, as the city established itself as a centre of agricultural power and might, a group of energetic citizens, leaders in politics and business, got together to form the Chicago Board of Trade as an association to build upon this newfound wealth. Soon enough trade in physical commodities had metamorphosed into trade in to arrive contracts, primitive futures contracts, with orders transmitted by telegraph and ticker tape across the railway network that spanned the continent. Techniology played a part, again. The new telegraph ticker, its wires running into the city along the railway lines, brought the whole of America into the furious trading pits in the huge hall at the heart of the Board of Trade’s great buildings.

So politics and history are entangled with stock markets. I think it’s fair to say that 20th-century nation states could not have looked the same if they hadn’t entered into those partnerships early in their history. In turn, state support financial markets through the provision of appropriate legal structures. Whether that’s the eventual legalisation of derivative trading by Chief Justice Holmes in 1905 and his claim that speculation is a socially useful and economically productive activity, or the reorganisation of debt law in 17th-century England to make stock trading possible, financial markets depend upon the nation states with which they have grown.

Materials and technology play their part as well. The ticker tape was only the beginning of technological upheavals in markets. We’ve seen how the digitisation of major exchanges has been led by the personal projects of engineers, either in the institutions themselves, as in the case of the London Stock Exchange, or by outsiders, as in the case of the so-called bandits of Island and Archipelago who ultimately reorganised the trading mechanisms of NASDAQ.[6] In today’s speed of light exchanges artificially intelligent algorithms strive to outwit one another, their creators often having only partial knowledge of the protocols on which they operate. In many ways this is an arms race between traders, with stock exchanges providing and profiting from the infrastructure for that race. You have to pay, just to remain at the table. Think of the cable drilled through the Appalachian mountains so that a dead straight fibre-optic line could shave microseconds from the transmission time between Chicago and New York. Then the line of microwave dishes following the geodesic, signals travelling as quickly as the laws of physics allow, so long as it isn’t raining.

You pays your money, you takes your choice, as they say.

We should never forget that stock exchanges are businesses and change what they supply to satisfy a changing market. If global financial markets have a certain homogeneity of organisation on principles dictated by efficient market theory, that’s because it’s what sells in the market; if they have transcended and now seem to disrupt the very structure of the nation state, that’s because they are a reflection as well as a cause of globalisation, intertwined with and embedded in global capital flows. I began this series by suggesting that contemporary financial markets are pivotal in so many of the global challenges we face today, engines for inequality and global environmental degradation, with executives pushed to short term profit maximization by avaricious shareholders. That should come as no surprise, in view of the relationship that I’ve just sketched out: if stock markets are extractive and polluting in nature, they are simply a reflection of a high capitalism that extracts and pollutes. If, in the years leading up to the credit crisis of 2008 financial markets became increasingly self-referential and dislocated from the underlying production economy, that’s just another reflection of a broader shift from production to finance as the source of value, from enterprising opportunity seeking to riskless rent seeking, if you prefer. As for the recent upsurge in our understanding of the inequalities of class, race and gender in financial markets, such inequalities have always been there, whether we noticed them or not.

Such is the symbiotic relationship of markets and capital, it seems hard to imagine how we might reform financial markets without reforming capitalism. Turn that on its head, though, and it’s hard to see how any meaningful reforms of our economic system can take place without rethinking finance and financial markets. (Thank you Taylor Nelms for that observation!) So, what are we left with? Should we, as Hunter S Thompson suggests, exterminate the brutes? Mark it down as a bad trip: fast and wild in some moments, slow and dirty in others, but on balance a bummer? Burn it all down? Tempting, except for our jobs and hospitals and schools, the food on the shelves in our supermarkets. If we set a flame to finance, the whole world will burn.

It seems to me that global finance began to go wrong when it began to think of the market as a single, infinitely powerful computer offering a proliferation of contracts and prices, rendering the unknowable knowable in every direction at the same time. Neither history nor sociology support such a view. The markets that we know today stem from practical solutions to historical problems: how to get money out of merchants’ pockets without taxing them, how to buy and sell wagons of bulky, heavy winter wheat without shipping it around the continent. Let’s put stock markets back to work, chipping away at particular, pressing problems. Perhaps at the end of it finance will look different: a proliferation of small, fit for purpose markets serving technical ends rather than giant global institutions furthering the wealth of very few. That might sound like so much hot air without some concrete examples, so here are a couple.

Every day, when I have finished preparing a meal, I carefully wash out the various bits of plastic packaging, cardboard and steel tins and place them in the recycling bin. Once a month the local authority picks up the materials and takes them away. The hope we all cling to is that they are sorted and sent to places where they can be turned into new bottles, or jumpers or tins or car tyres or whatever it is they do with them. But for that to happen, they must move through a market for recyclable materials. The contents of my bin become commodities in their own right and circulate towards those who will pay for raw materials to make other things. It is, like the agricultural trade in Chicago two centuries ago, a bulky and dirty commodity. And what’s worse, the market is in disarray. There is oversupply, while at the same time, manufacturers of soda bottles wishing to increase the amount of recyclable material they consume report that they can’t get hold of enough stock. Prices fluctuate wildly, making it difficult for businesses to plan or invest in new capacity. Trading is done over-the-counter, usually by phone, between counterparties who know each other. That means the market is opaque and informationally problematic, and as we know from episode four, asymmetries of information lead to low prices that drive out all but the worst sellers. Jordan Howell, a professor of sustainable business at Rowan University, says the market is dysfunctional.[7]

Howell and his colleagues, Jordan Moore and Daniel Folkinshteyn, professors of finance at the same institution, have a plan. They have embarked upon a project to figure out what a derivatives market in recycling might look like. Such a market would enable buyers and sellers to transact for products at some point in the future at a specified price. Just like the farmer who needs to know his winter wheat will be worth something, irrespective of the bountiful harvest, or the miller who wants to be sure he can buy that wheat at a decent price even if the crops fail and the price shoots up, the recycling industry could start to organise itself around a transparent price made by the market. A futures market (that’s the same as a derivatives market) is there to provide a technical service in managing risk. Between these two counterparties stand professional speculators who buy and sell that risk in the hope of a profit. There’s lots of evidence to suggest that a steady futures price helps to settle and offer transparency to the underlying commodity price, so the scholars hope that the benefits would feed back into the recycling market proper. What a great idea this is – a specialised, technical market to deal with a crucial global challenge. It doesn’t even need to cross the threshold of Wall Street.

I mentioned in episode one a project closer to home, an attempt to build a stock market in Scotland that would fund new businesses with a social and environmental slant. This too seems a plan of its moment.

In the nineteenth century Britain had a number of regional stock exchanges. Scotland alone boasted markets in Aberdeen, Dundee, Edinburgh, Glasgow and Greenock. In 1962 there were 20 markets with official recognition but regulators pushed for an amalgamation and rationalisation in the name of transparency and investor protection. In 1964 the four city exchanges joined together into the Scottish Stock Exchange, a notional umbrella organisation, and then in 1971 centralised in the Glasgow stock exchange building.

In 1973, the same year that women were admitted to the London Stock Exchange, the Scottish exchange was wound up and its business transferred to London. An increasing concentration of capital in the city of London, together with greatly improved communications, offered economies of scale and efficiencies that the small regional exchanges simply could not match.[8]

Now, of course, there is a growing call for independence in Scotland, and a general  weariness of being subjected to yet more idiocy from the capital. Brexit, which Scotland didn’t vote for, has bought this to the fore, but there is something more fundamental at play: a desire to do things differently, to implement a kind of economic social justice that seems increasingly out of reach in Tory England. This is just anecdotal, but capital seems willing to stay put and circulate more locally. Perhaps the time is once again right for a Scottish stock exchange. Unfortunately the social stock market, or Project Heather as it called itself, got off to a shaky start after its founding chief executive allegedly burned through £2 million of start-up funding with a ‘jet set lifestyle’.[9] But it is under new management and Covid-permitting we hope to hear great things.

If those involved will indulge me I’d like to employ a thought experiment. I’d like to take everything we’ve learned over the last eighteen episodes and see what it means for these two projects: it’s a purely hypothetical endeavour, of course, and a slightly hubristic one, for I certainly don’t have the depth of knowledge that those working on the coalface do. But it might be interesting, nonetheless.

If we had to make a broad taxonomy of things that matter, themes that have emerged from our stories, we might say these: the social, the material, the regulatory, price-making and the story. Somewhere along the way we also have to think about the business proposition. Stock exchanges are businesses and make their living selling services to customers who want them.

When it comes to starting a business, the classic business school, MBA approach is to forecast the market, usually on the basis of some small percentage of the global market, justified with the claim that we are only seeking a tiny fraction of the whole; to build the product and design the marketing material and hope. Many years ago I was guilty of this approach myself, with long spreadsheets showing a steady uptake of sales as my proposed small company research and commentary business took off. Such forecasts withered under the gaze of the hardened businessmen from whom I sought investment: the founders of Shares magazine first of all, later on that wily crocodile Bruce. He turned to his sidekick Otto and said, ‘I don’t understand what he’s saying, Otto’, and Otto replied, ‘I don’t understand either, Bruce’, as they sucked their teeth and dialled up the pressure on an investment that nearly, but never quite, happened. I liked Bruce, respected him too, and he was always kind to me. But Bruce, and anyone who has been in the world of real business, knows that selling things is really hard work and no amount of forecast revenues in a spreadsheet will make that first sale any easier. Businesses succeed where there are already customers clamouring at the door. Look at the two markets whose story I followed throughout: AIM was founded when the London Stock Exchange’s customers forced its hand, voting with their feet, moving their business to a rival which suddenly became substantial enough to pose a threat. That rival was John Jenkins’ Newstrack service, soon to become OFEX, which itself only came into being after customers petitioned Jenkins to offer them trading facilities. Peter Drucker, the grandfather of business gurus, gave impetus to my ambitions with his claim true entrepreneurship is always risk-free, for it shifts resources to higher value parts of the economy.[10] I know now that that this is relies on a tortuous and ex-post definition of entrepreneurship; starting your own show is a risky business indeed.

A stock exchange has to earn a living. How then is one to proceed when there aren’t any customers? Of course there are potential customers, but how are we to overcome their inertia? In the case of the recycling industry, dealers are used to trading over the phone with counterparties they know and carrying commodity risk on their books. In the case of the Scottish small-company investment world, there are already strong social networks, institutional routines and material practices pulling business down towards London.

We need a good story. All stock markets have them, and as I’ve been saying throughout the second half of this podcast series, stories do more work than you would think. It’s easy to say that London’s markets emerged in the eighteenth century to service the national debt and the stockholders of the new corporations, but that neglects the tremendous hard work of narration that accompanied this transition. Daniel Defoe, more than anyone, contributed to the acceptance of economic fictions as facts; his project of novel writing was intimately tied to one of inciting belief in through print, in corporations, and banks as well as characters.[11] Throughout the three-hundred year history of modern finance, experts, pundits, academics and pamphleteers have assisted in the sheer effort of make-believe required to make it possible. I am part of that tradition. So is this podcast, and so, dear listener, are you.

The founders of AIM, led by the extraordinary Theresa Wallis, seemed to know intuitively that this was the case. They didn’t just forecast and launch. They opened up an extensive consultation with the community of expected users, talking about what they wanted and the shape such an exchange might take. They went for long meetings, sat through lunches, talked in offices into the night; responses to the consultation led to correspondence and flowed into the new market’s unexpected and novel shape. I have the sense that when the market finally opened it was already there, conjured into existence by so much talk and conversation, like the yet-to-be-built house that has achieved such concrete reality in the minds of its future owners that they find themselves choosing furniture before the foundation has been poured. A working exchange is the anchor for a whole ecosystem of companies, advisers, and investors. In the middle of the year 2000 my small company research outfit was commissioned to produce a report on OFEX’s then quite remarkable commercial success, and it was presented at a shindig celebrating the market’s five year anniversary. I remember a big crowd, colleagues and friends enjoying the Jenkins hospitality: a community. John Jenkins made a speech about his market’s success and waved the report around, getting our name wrong in the process. Another chief executive leaned over and observed, sotto voce, ‘you’ll never hit him with a glass from here…’

Taking such an approach deals with the other problem that dogs financial markets, which is that people like to transact with people they know. Contemporary financial markets go to great efforts to purge social relations from exchange, on the basis that these get in the way of price formation. Even then, the exchange itself is always embedded in a great spiderweb of social relationship and reputation, and exchanges are always social projects. Donald MacKenzie and Yuval Millo record an anecdote about precarious moments for the Chicago Board of Trade following Black Monday, October 1987. Losses were so great that the clearing system, where giant banks stand behind and guarantee individual customer accounts, failed. Leo Melamed, the chairman, spent the night making calls to the senior executives of banks, using all his personal capital to make sure the exchange could open. He’s quoted as saying to one account manager, a few minutes before the opening bell,  ‘Wilma, you’re not going to let a stinking couple of hundred million dollars cause the Merc [Mercantile Exchange] to go down the tubes, are you?’ At that moment, the chairman walked into Wilma’s office and agreed to put up the money. A stinking couple of hundred million dollars, that’s what friends are for.[12]

Building a story means more than floating pieces in newspapers. Project Heather, the social impact exchange in Scotland, made a fair bit of noise in the press with grandiose claims about progress but these soon turned into gloating pieces about financial troubles and jet set lifestyles. Of course, the odd positioning piece helps, but what really matters is the collaborative production of a market narrative among those who are going to use the exchange, making it so real and so theirs that when the time comes to move in they will be unpacking crates and popping champagne corks.

Once you have a story, and a community, you need a market place.

I can’t overstate the importance of the marketplace. Across 17 episodes we have examined the development of stock markets by means of their material structures and physical locations. Not once have the builders of markets been casual in their approach to the physical spaces in which their markets operated. We saw generations of buildings in Chicago and London evolving to house the great markets of the time, their massive halls with open lines of sight and cutting-edge communications built to support the operation of trade. Architects worried about the balance between appearance and function as they fretted over such minutiae as floor coverings. We saw the new electronic markets arrive as projects driven by technologists who sought to rethink how markets might work, following the aesthetic of the engineer rather than the broker. Those building markets understand the relationship between materiality and good prices, and have along the way wrestled with that of the fundamental question, how prices should be made. As we have seen in recent episodes, two dominant mechanisms of price making have emerged. These are electronic order books and market-makers offering buy and sell prices; lined up behind these are two competing social orders and sets of moral norms, efficiency versus intervention, transparency of price versus transparency of person.[13]

Here, I think, we have learned something. We have seen the emergence of one dominant understanding of market organisation, tied to Eugene Fama’s efficient market hypothesis and a focus on transparent pricing. This leads us to electronic order books, anonymous buyers and sellers, and engineering solutions focused on time and speed. Anyone wanting to start a stock exchange is left with a formidable problem because the machinery needed to set up such a system is incredibly expensive. Remember the struggles of Plus Markets under Simon Brickles, with tens of millions of shareholders’ funds sunk into a system capable of rivalling the London Stock Exchange, a vast spider’s web of orders, prices, settlement, reporting and surveillance, that must never fail, ever.

Some of PLUS’ executives doubted the wisdom of going toe to toe with the LSE, and I would be inclined to agree with them. Established exchanges are giant corporations that have accumulated the capital and systems necessary to operate global data infrastructures. One might as well seek to outcompete any other infrastructure heavy industry, like shipping or steel. It’s not a game for start-ups.

You can get round this by approach another exchange company and asking them to supply you with the technological services badged up under your start-up’s name. This is the go to for the stock exchange entrepreneur, but I wonder if this is what we should be doing at all. One of the things I hope to have shown in this podcast is that the Fama market is itself a historical particularity embedded in path dependencies and technological change. It is not the only way to organise a market, nor the end of history for stock exchanges. In episode 12 I showed how the LSE’s AIM had invoked a distinctively different means of organising the market, with a system of private regulation based upon reputation. It looked like a producer market, a farmers’ market rather than a Fama market, I joked.

Here our examples might diverge. The goal of the recycling futures market is to create stable prices as reference points for large organisations and their long-term planning. The futures market would – in theory – shift risk away from the recycling firms into the hands of those whose business is managing risk, leaving the recyclers to the important job of managing rubbish. It demands the participation of professional speculators who would use instruments attuned to the Fama paradigms. The identity of counterparties is far less important here than the transparency of prices, and we are steered towards electronic order books and everything they entail. At the same time this move to anonymous Fama organisation is the greatest obstacle facing the market, for the recyclers themselves are used to dealing over the counter, by phone or email, with people that they know and trust. They are also used to dealing with the risk attached their rubbish and worry that if they lose one they might lose the other.

Professor Howell and his colleagues have to deal with another issue: while there is lots of evidence to suggest that efficient futures markets filter back and organise the price of the underlying commodities futures need underlying prices to get going in the first place. If the whole project is based upon the absence of such prices, we have a chicken and egg problem.

One suggestion is an industry board, in order to get prices going, something like London’s LIBOR. This interbank lending rate, until recently one of the most important numbers in the entire financial world, is set daily by way of participating banks phoning in their best estimates of borrowing costs. A steady organizational routine collates the market’s professional judgement, ranks and averages it, and maintains a public record to deter malfeasance. At its peak, LIBOR indexed $300 trillion of derivative contracts. Would it be possible to organise something like that for the recycling industry – to get these over-the-counter traders to estimate their prices day on day and publish these more widely? And if it was, would this be enough – if the problem is lack of stable prices in the industry then perhaps you don’t need an elaborate Fama market after all, just strong organisational protocols, social networks, some whiteboards and some phones. If you do, I would speculate that it makes sense to tackle the derivatives alongside the spot price, to talk the whole operation into existence as a self-contained financial world, co-produced by everyone involved. And still, do you need the whole shebang of order books and clearinghouses, or is there a parsimonious solution whereby one can persuade an existing dealer to offer contracts on the basis of the industry’s published prices? Do you have to build this market or can you let it grow? I don’t know: I defer to Professors Howell, Moore.

For our friends in the Scottish stock exchange, the prognosis is different again. Their proposition is to raise capital for businesses located in Scotland, with a social and environmental slant. It’s to keep capital circulating locally, and to support both of these endeavours through the provision of an effective secondary market in the stock, so that investors can sell their holdings at a fair price and sink their money into new ventures.

More than anything, this market will be held together by personal connection and must be able to cope with low volumes and intermittent trading. Investors and companies will be here because they are Scottish and green – if they cared about skimming a quarter percent from commissions or accessing the giant wells of capital available in London they would be elsewhere. It doesn’t make sense to rush for the same organisational structure that powers main board exchanges worldwide, especially when we see how thin is that business proposition, even dealing the world’s biggest companies. What is needed here is transparency of person rather than price. Look again at the work that goes on behind the scenes in London’s AIM, with corporate brokers staging an endless roadshow to potential investors so that there is a willing buyer when one is needed. For the institutional investors on AIM, the front stage market-making is almost a distraction, but it plays an important role in setting anchor points for the prices. Remember how John Jenkins used to trade by matching bargains, building up lists, negotiating between buyers and sellers and taking a fee; if you prefer an automated solution you can build an order book over the course of a few days, or even weeks, and transact at the best price available, but even then I’m not convinced that many deals would go through. Think instead of Sextus’ primitive exchange enacted through the pages of a magazine, or the brokering efforts of business angel networks up and down the nation, who wear out the metaphorical shoe leather raising money for risky, early stage investments. I’m not saying the medium doesn’t matter. To paraphrase Marshall McLuhan, the medium is the matter, and it’s precisely because certain types of material arrangements lock us into certain kinds of social practices that we need to think carefully about the structures we choose.

My point is a simple one: if global finance isn’t fit for purpose, that must be in part because its mechanisms aren’t fit for purpose either. And if its mechanisms aren’t fit for purpose we should not waste time trying to ape them. They are normative and performative, locking us into a cycle from which we would do much better to escape. My history suggests that a functioning Scottish stock exchange will come not from the efforts of disruptive, etic entrepreneurs, observing transcendental rules of finance and attempting to apply them at the local level, but from local participants in the finance sector who decide to expand their narratives, their aspirations and their offerings bit by bit until they find that they have – almost by accident – started a stock exchange.

18 episodes ago, I promised to tell you how to build a stock exchange. It seems I told a bit of a fib. I also promised to tell you who invented unicorns. On that point, if you’re really interested, Wikipedia thinks the first attributed use is by venture capitalist Aileen Lee, in an article called ‘welcome to the unicorn club’, published in November 2013. Seven years ago, almost to the day, Lee could point to 39 of these billion-dollar start-ups, with a quarter-trillion total value, almost half of which belonged to Facebook. Now there are 490 unicorns with a cumulative valuation of $1.5 trillion. If any statistic could capture the ills of the contemporary financial sector, this one can: these days unicorns are practically factory farmed. [14]

I just thought the who invented unicorns was a cool thing to say, but I really did mean it about the stock exchange. You see, when I started out I thought there might be such a thing as a blueprint, a platonic ideal of a stock exchange that I could set out before you, and you could rush off and build your own, saving the world by doing so. I thought that one might build a stock exchange in the same one builds a car, engineering the machinery to a preordained plan. It turns out the plans are as much a historical artefact as the stock exchanges themselves.

To build a stock exchange, you need a world that is ready for it, a world that will believe and buy into your new narrative of what financial markets should do. You need a community ready to create the new market together. Only then can you design the materials of the market, bearing in mind that your machinery will shape the market just as much as the stories you tell about it. The politics and power relations of your stock exchange, the very theory of its operation, will be hidden away in its nuts and bolts, its code and wires. Think carefully about how you build!

And where do I fit in, the academic, the observer in all of this? My hope is to nudge and stimulate those conversations, to provoke talk and chatter, to nurture stories, to provoke you via a project that has seemed as long and risky and perilous as anything Defoe might have set down on paper. How has it been, this escape from the seminar room into the crowded podcast space, this attempt to find a voice that is, if not pure gonzo, at least more reflective and honest than two magicians barefoot on the East Side. Has it been ‘a bad trip … fast and wild in some moments, slow and dirty in others…on balance a bummer’? I hope not.

Maybe there’s a bit of me that wants to go all post-modern on your ears and tell you all the whole thing is just a joke, that there is nothing we can do apart from tear the world down around us. That I can offer no  epitaph better than Mr Kurtz’s final words. But I don’t think that’s true. I’m pragmatic. We are in a sticky place, for sure, and should use every tool available to try and get out of it. So, dear listener, enough from me and over to you: it is time to build some stock exchanges.

I’m Philip Roscoe, and this has been my podcast. If you have kept me company to the end, thank you. It has been a pleasure.


Although you surely can’t have too much of a good thing – that being my lectures – the listening experience, and the fun of putting them together, has been greatly improved by the availability of sound samples at freesound.org, under a variety of licences. I would like to thank all of those who have contributed to this brilliant resource.


This episode uses the following samples:

Floor trading https://freesound.org/people/touchassembly/sounds/146268/

Cash register https://freesound.org/people/kiddpark/sounds/201159/

Shovel https://freesound.org/people/Ohrwurm/sounds/64416/

Cork popping https://freesound.org/people/KenRT/sounds/392624/

Champagne pouring https://freesound.org/people/Puniho/sounds/169193/



[1] Eve Chiapello, “Capitalism and Its Criticisms,” in New Spirits of Capitalism?, ed. Paul Du Gay and Glenn Morgan (Oxford: Oxford University Press, 2013).

[2] Martin Hirst, “What Is Gonzo? The Etymology of an Urban Legend,” (St Lucia, Queensland: The University of Queensland, 2004).

[3] Jason Mosser, “What’s Gonzo About Gonzo Journalism?,” Literary Journalism Studies 4, no. 1 (2012): 88.

[4] Jesse S. G. Wozniak, “When the Going Gets Weird: An Invitation to Gonzo Sociology,” The American Sociologist 45, no. 4 (2014): 453.

[5] For detail and references, see https://how-to-build-a-stock-exchange.blubrry.net/2019/03/

[6] See https://how-to-build-a-stock-exchange.blubrry.net/2020/06/05/episode-16-markets-at-the-speed-of-light/

[7] This detail from Howell’s presentation “Why derivatives for recyclables? Why now?”, at workshop ‘Building a Market for Exchange-Traded Derivatives for Recyclables,’ Rowan College, 30 July 2020.

[8] See Gareth MacKie, A history of Scotland’s stock exchanges, The Scotsman, 18 March 2016.

[9] https://www.thetimes.co.uk/article/scottish-stock-exchange-jet-set-life-of-boss-tomas-carruthers-j2skf9wsq

[10] Peter Drucker, Innovation and Entrepreneurship (Oxford: Butterworth, 1999).

[11] Mary Poovey, Genres of the Credit Economy (Chicago: University of Chicago Press, 2008).

[12] Donald MacKenzie and Yuval Millo, “Constructing a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange,” American Journal of Sociology 109, no. 1 (2003): 133.

[13] See my paper ‘Why matter matters for morality: the case of a stock exchange’, forthcoming in Human Relations.

[14] https://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/; https://www.cbinsights.com/research-unicorn-companies

Episode 17. White markets, black markets

This episode examines the racialized structures of finance. It sets off from the infamous Zong massacre and legal case of 1781 to explore the patterns of exploitation that underpin finance, and to show that contemporary finance is built on structures and practices established by eighteenth century slavery. It finds modern parallels in the speculative credit of the financial crisis and its legacy of austerity. There’s a personal narrative, as well, a family genealogy that circles the slave trade, winding up in the sometimes contradictory figure of the critical management academic.


A picture, a poem, a legal text. Three representations of the same unspeakable truth.

The picture: Turner’s greatest masterpiece – at least in the eyes of the art critic John Ruskin – the Slave Ship, or ‘Slavers throwing overboard the dead and dying, typhoon coming on’. A swirling mass of violence, colour, and anger, held together by a lowering sun, red, ochre, orange; the sea smashing in from the left, foaming, boiling, the whole picture askance. In the background the stricken ship, sails secured, ploughing through the spume. But the foreground, oh, the foreground: a severed black leg, manacle attached; hands reaching, the ironwork of that abhorrent trade somehow floating; hideous fishes descending ravenous, gulls circling, the water carmine to match the sunset. It’s hard to look at. I’ve never seen it in the flesh, this painting, but by all accounts its physical presence is even more unsettling. Ruskin, its first owner, could never find a place to put it, and the image haunted Mark Twain’s writings for years.

The picture, first exhibited in the Royal Academy in 1840, thirty seven years after the abolition of slavery in Britain and its colonies, evoked the sum of brutality and horror that the slave trade embodied. Yet it referenced one event in particular: the Zong massacre of 1781, an event that came to be emblematic of the horror of slaving and did much to galvanise the public to the abolitionist cause. The Zong was a slave ship and its captain, Luke Collingwood, ordered the drowning of 133 of his captives.[1]

Let’s not rehearse the details here. Let’s go instead to the poem. A cycle, in fact, called Zong! (with an exclamation mark) by M. NourbeSe Philip. You can find her reading from the cycle online; it is a tone poem of seemingly random words, forcing the listener to recognise the need to make sense of a happening that never can be understood. This, she writes, ‘is the closest we will ever get, some 200 years later, to what it must have been like for those Africans aboard the Zong’.[2]

The words are not entirely random.

The Zong massacre came to prominence through the efforts of leading abolitionist Granville Sharp. Sharp heard of the event from freed slave and campaigner Equiano, and recognising its rhetorical and political possibilities, compiled a weighty dossier which now rests in the archives of the National Maritime Museum. The massacre has, in this way and that, been expropriated ever since: as a symbol not of tyranny, but of salvation, of the abolitionist narrative that allows Britain to take credit for abolishing a practice that it had done so much to establish. A recreated Zong even sailed into the Thames for a 2007 celebration of the vote that abolished slavery.

There is another source, however, a prosaic account of the legal hearing that followed. It was not, you might be surprised to hear, a murder trial but a civil case, Gregson v Gilbert. For the massacre was not just an atrocity but the basis of an insurance claim, and when the underwriters refused to pay the slavers took them to court. Philip’s poem draws on this document. An early version of her poem, available online, begins as follows: ‘Captain slave ship Hispaniola Jamaica voyage water slaves want water overboard.”[3]  The legal report runs: ‘Where the captain of a slave ship mistook Hispaniola for Jamaica, whereby the voyage being retarded and water falling short, several of the slaves died for want of water and others were thrown overboard, it was held that these facts did not support a statement in the declaration…’ And so forth.

For Philip, the poet, this is a found text, corrupt, polluted by the murderous rationality of the law. And who could disagree?

The text comes from a collection of legal reports published in 1831, compiled from the notes of various lawyers. The editor responsible for the compilation was a barrister and legal scholar, a member of London’s inner Temple. His name was Henry Roscoe. My name is Roscoe too.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe and I am a sociologist interested in the world of finance. I teach and research at the University of St Andrews in Scotland, and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast, however, you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. As well as these, I’ve been looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

The recreated Zong may have sailed up the Thames, but the original never did. It was a Liverpool ship owned by the Gregson family, princes among the Liverpool slavers. To tell the story of the Zong  is to go back to the commercial world that developed in the eighteenth century at an astonishing speed in this provincial town in north-west England. The Zong is, as the literary scholar Ian Baucom has made clear in his monumental ‘Spectres of The Atlantic’, an event that is both singular (though one hundred and thirty three persons, thrown overboard, one by one, over the course of three days, is also one hundred and thirty three singular events…) and typical. It is typical because it epitomises a new kind of finance capital that had grown more than anywhere in Liverpool, and that had propelled  this sleepy provincial town to a position of such pre-eminence in the Atlantic trade that it could consider itself one of the world’s commercial capitals.

I’m writing this in the days following the spectacular dethroning of Edward Colston, the Bristol slave trader whose statue had watched over the city until just last week, and whose toppling into the harbour unleashed a great catharsis for many in the city.[4] I don’t know Bristol well so I was most surprised to hear, not that the statue was pulled down, but that it still stood. And that it did so, despite years of civic campaigning, because people had defended it as part of the history and heritage of the city. It’s just history: passive, past, powerless. If we follow Baucom’s logic, and I think we must, we come to recognise that this history is very much in the present: that the origin of global finance as we know it today is not solely in the massive deregulations of the 1980s, nor the technological leaps of the last two decades, but also in the tormented bodies of Africans captured, transported, and enslaved.

The Gregsons may not have left statues, or even many traces in the archives (thank you here to Baucom, on whose work I am relying for this account, among others listed in the notes on the podcast website). But they made an indelible mark upon Africa, the Caribbean, and Liverpool. William Gregon, patriarch of the family, embodied the entrepreneurial drive and opportunity that Liverpool offered in the eighteenth century. The son of a porter, he started out a rope maker but rose to be one of its most distinguished citizens, becoming mayor of Liverpool in 1762. During his career he invested in 152 voyages. ‘Even in the desolate world of slave statistics’, writes the historian James Walvin, ‘these are astonishing figures’: his voyages had carried 58,201 Africans, of whom 49,053 survived to landfall. By that account – and we shall return to accounts shortly – 9,143 perished.[5]

As mayor, Gregson would have occupied an office in the Liverpool Exchange, a lavish building opened in 1754. Like the later Chicago Board of Trade, which we visited in episode two, the Exchange existed not just as a physical monument to new found wealth and power but also as a political organisation devoted to the furtherance of the city’s economic growth. Unwholesome as we might have found Chicago’s industrial slaughter of animals, that city’s trade was nothing compared to that of Liverpool. Slaves never travelled through Liverpool, of course, but no one was innocent enough to suggest that the city’s newfound prosperity was due to anything but slavery. The merchants themselves, the bankers and lawyers who served them; ship builders expert in the specialised design of these floating gaols; rope makers, gun makers, ironmongers churning out gratings and manacles, sellers of victuals and rum; corrupt publicans who plied the sailors with drink and press-ganged them into service on the slave ships – the most hateful, hazardous and destructive occupation on the seas – all of this was driven by slavery. The city’s tendrils followed the new roads and waterways inland, shipping manufactured goods from Manchester to Africa and American cotton back to Lancaster. Slavery powered the economy of north-west England, and everyone knew it; those commissioning and designing the Exchange did not shy away from the truth, decorating its exterior with African heads.

I don’t want to talk about the Zong, rather to circle it, casting glances at the horror. But I am tied to these events by more than a shared heritage of English guilt. Just as the city boomed commercially, so it enjoyed an explosion of culture and refinement. The Exchange building’s piazzas of white stone were just one expression of a growing passion for all things Italian. In fact it has been argued that the British romantic notion of the Italian Renaissance came from Liverpool.[6] Liverpool’s cultural transformation was led by one man in particular. His name was William Roscoe. He was the father of Henry, barrister and transcriber of the Zong hearing, and he was the great grand-father of my great-grandfather.

Unlike Gregson, Roscoe was famous. He is now remembered as one of the city’s founding fathers, commemorated in plaques and street names. There is a fine little pub called the Roscoe Head; I have a picture of it above my loo, which I think is funny. He was a leading cultural figure: his biography of Lorenzo d’ Medici brought him admiration from Horace Walpole and comparisons with Gibbon, spreading Liverpool’s identity as a cultural centre across the world. He wrote a children’s poem (originally for my great-grandfather’s grandfather), titled ‘The Butterfly’s Ball,’ which was admired by King George. He is remembered most of all as a leading abolitionist: author of three long poems condemning slavery. These were a great popular success, although to the modern ear they are unwieldy and inaccessible. He was even an MP for a crucial year which allowed him to vote for the abolition of slavery in 1807, though he faced riots and hostility on his return to Liverpool.

And yet. Roscoe’s first profession was that of lawyer, and by the age of 46 he had made enough money to retire to Allerton Hall, a stately home outside the city. His art collection included a then unfashionable Leonardo da Vinci. In the year 1800, he took up a partnership in distressed banking firm run by his friend Thomas Clark, and set it right. What did he bank? What contracts did he draw up? The British banking system was powered by these bills of exchange. Liverpool’s engine ran on slavery. Roscoe’s huge legal fees, his banking commissions, his stately home, his Leonardo, would have been tainted by its stench.

He would have certainly shared a cultural and social milieu with the Gregsons and their peers. Among the institutions that sprang up in Liverpool at the time was the Athenaeum, a subscription library that served, and still serves, as the meeting place for the city’s merchant elite. Gregson’s son-in-law, George Case, bought a large house next door to it. Roscoe was one of the Athenaeum’s founders and his library was the foundation of its extensive collection. One of Roscoe’s close friends was Matthew Gregson, who cannot of been unrelated. The slave merchants did as good eighteenth century burghers would do: giving money to the right causes, improving and developing the infrastructure of the city.  It seems likely that my great-grandfather’s great-grandfather knew these men well, conducted business with them regularly, took their subscriptions to his civic schemes, and welcomed them at his cultural events. Indeed, in the Oratorio week of 1784, just months after the Zong hearing, and a few months before his son John became Mayor, Liverpool held its Oratorio Week celebrations with theatre, shows, an art exhibition and a masked ball. Baucom speculates that the Gregsons attended the latter; I speculate that they also attended Roscoe’s exhibition of Italian art, the first such to be held in Liverpool.

And this distinction between the visceral horrors of the Middle passage and the refined highlife of Liverpool’s new commercial elite was possible only because of a variety of technical and material innovations that can be subsumed into the category of finance.

The Liverpool merchants – and lawyers and bankers – invented a system of credit that allowed them not only to greatly speed up the circulation of capital around the slave triangle, but also to benefit from interest on that capital as it flowed. Moreover, they perfected a system of insurance that helped them survive the regular total losses sustained by slaving expeditions. We tend to think of slaving as a physical endeavour, but it was a financial one as well. The trade, as we all know, operated in a triangular fashion. Manufactured goods were shipped from Liverpool and Bristol to West Africa where they were bartered for slaves. These Africans were penned in slave factories subsidised and staffed by the British government. You will remember from episode three how the London stock exchange originally developed to provide a market in the early joint-stock corporations which existed to further British colonial interests; the Royal African Company, which operated these factories in the seventeenth century and with which Edward Colson traded, was one such.

Slaves were transported across the Atlantic – the hellish Middle passage – then handed to factors who supervised the auction for a commission. The final leg of the journey saw this money converted into goods for import, such as sugar, rum and cotton and returned to Liverpool for sale.

The problem with this system was that it was slow and risky. Too much capital tied up in material goods, circulating at the pace of the breeze, vulnerable to shipwreck, piracy, and in the case of the human cargo, death, disease and insurrection.

The Liverpool merchants started to use credit in the form of bills of exchange. I paraphrase Baucom here. The factor would sell the slaves for hard cash and then, having taken his commission, return an interest-bearing bill of exchange by the next ship to Liverpool. The factor had ‘not so much sold the slaves…as borrowed an amount equivalent to the sales proceeds from the Liverpool merchants and agreed to repay that amount with interest. The Liverpool businessman invested in the trade had, by the same procedure, transformed what looked like a simple trade in commodities to trade in loans.’ The bills, like modern bonds, circulated among investors at a discount to face value. This bill-bond market became so liquid and reliable that in due course the merchants began to pay the African vendors with bills of exchange as well. The slaves, writes Baucom, ‘functioned in this system simultaneously as commodities for sale and as the reserve deposits of a loosely organized, decentered, but vast trans-Atlantic banking system: deposits made at the moment of sale and instantly reconverted into short-term bonds. This is at once obscene and vital to understanding the full capital logic of the slave trade.’[7]

Capital, as Marx figured out, is desperate to jump from this earthbound circuit of production to a situation where it can multiply upon itself. That’s the heart of financial capitalism, then and now: the search for ways of setting speculative capital free to flow more quickly and generate higher returns. By this account, it is not just the slave ship that sits at the heart of the trade, but the banking house, its solidity underpinning the circulation of credit around the Atlantic. The bank and these credit notes are enmeshed in dense social chains of guarantee, those same underwritten by the merchants’ knowledge of and trust in each other. That also was true of modern finance, at least until the algorithms arrived. It’s why I feel a little uncomfortable about William Roscoe’s social standing and I feel very uncomfortable about his bank; when he entered the partnership in 1799, it was at the behest of London banker Sir Benjamin Hammett, who held some £9m on deposit. Where can all this money have come from?

Slaves existed simultaneously in two places, in the stinking holds of the slave ships and in the disembodied realm of accounting books and ledgers. Their speculative financial value was locked into place by a final financial technology closely related to the social networks and the financial institutions of the city. This was insurance. Slave merchants realised quickly that the only means of surviving frequent total losses of capital was through mutual support and the pooling of risk. Insurance formalised this practice but by underwriting the economic value of a person it also made concrete their existence as an economic object, a chattel to be understood in terms of future revenue streams. Insurance makes speculative value real: underwriting a painting, for example, guarantees that the expectations of worth will necessarily be met, at least under the appropriate conditions.

This goes to the heart of the Zong massacre. As Captain Collingwood, incompetent or deranged, or both, found himself unlikely to land a cargo of slaves, he sought to crystalize by murder that guaranteed value. If the slaves had died of natural causes, or landed unsaleable, it would have resulted in a loss for Gregson’s syndicate. By the maritime insurance principle of general average, if part of the cargo had to be jettisoned to save the ship, all stakeholders would pay their share. And so, on the flimsy justification of navigational error and water shortage, he instructed his crew to hurl overboard one hundred and thirty three men. It took three days, even if the final ten, grasping what little agency they had left, chose to throw themselves voluntarily into the ocean. NourbeSe Philip’s cacophonous words make as much sense of this as anything: it is senseless. But not to Captain Collingwood. His actions cleaned up the messy, bodily aspect of these persons cum commodities, catapulting them headlong into the realm of speculative value; of capital already made real by the insurance contract.

James Walvin warns us to be careful about the surviving testimony of motivations – how can we really know what was decided on the ship? – but the fact remains that the Gregsons sought redress from their insurers. But the chattels in question were human souls, one hundred and thirty three black lives, and they mattered then, as they do now.

I would like to say that is why the insures refused to pay, but Henry Roscoe’s papers show a legal system unconcerned with the niceties of life and death. Finding that they should have a bad market for their slaves, argue the lawyers for the insurers, the slavers took these means to transfer the loss from the owners to the underwriters. The Gregsons’s lawyers begin, ‘it has been decided, whether wisely or unwisely, that a portion of our fellow creatures should become the subject of property. This, therefore, was a throwing overboard of goods, and of part to save the residue.’ Lord Mansfield, presiding, concedes the matter to be ‘a very uncommon case’, the claim unsupported by evidence, and worthy of a second hearing. ‘It would be dangerous,’ says Justice Buller, ‘to suffer a plaintiff to recover a peril not stated in the declaration!’ See what is not contested: the morality of slavery, the existence of property rights, the act of murder.[8]

Throughout this series of podcasts, I have made one point over and over. Finance is sustained by a network of practices and technologies, and these are political. They are worked into material devices, the infrastructures of markets, and these are political too. Bills of exchange, accounting technologies and insurance policies are not neutral bystanders to atrocity, but the socio-material substrate through which such atrocities are conducted, just as much as manacles and slave ships.

Fast forward two hundred and twenty five years, to the year 2008. The global financial system is on the verge of collapse. The US government injects $182.5bn into AIG, one of the nation’s great insurers, which pays out to Wall Street creditors at 100 cents in the dollar, a direct transfer of wealth from American taxpayers to the richest stratum of society. The insurance had been doing then what Gregson’s insurance was doing in 1781, making real speculative value, and once again the state intervenes to keep this fiction in place.

To understand the roots of the global financial crisis we need to head back to the late 1970s and Wall Street. It was here that collection of traders, led by Salomon Brothers’ colourful Lewie Ranieri, invented the mortgage bond. Mortgages had, for years, been part of the American dream, one of the ways that middle America could climb aboard the raft of rising prosperity in the post-war years. Mortgage lending was handled by thrifts, what we UK would call building societies: sleepy institutions dedicated to the safe custody of savings and low risk loans to reliable local property owners. Legislation favoured the borrower, to the point where Ranieri could grumble that ‘the mortgage instrument becomes so perfect for the borrower that a large economic benefit is taken away from the other participants, including the long-term investor’.[9]

In order to increase supply, two giant government organisations had been founded to pump money into the system, but the result was still unappealing for investors. The main risk, from the investor’s point of view, was prepayment. With legislation allowing mortgage holders to repay their mortgages at will and without penalty, any financial instrument based on mortgages would be extremely sensitive to changes in interest rates, exactly what an investor would be seeking to avoid. The technique perfected by Ranieri, supported by legislative changes of the kind that Salomon’s massive capital and influence could achieve, was to collect a large number of individual mortgages into a pool. The pool was divided into tranches, or slices. The lowest slice absorbed the earliest prepayments (and since mortgages were effectively guaranteed by the government, defaults also registered as prepayments) in return for the highest interest rates. The middle tranche absorbed the next, and the senior tranche held the longest-surviving mortgages. The genius of this structure was that one did not have to know which individual mortgages fell into which tranche; they self-selected by virtue of defaulting. Across the whole thing it was possible therefore to have a robust, statistically informed understanding of the likelihood of  prepayment (the risk) set against the interest returns.

The bond is a device for standardising, and typifying, for translating the irregularity and grit of everyday domestic situations into a smooth and predictable flow of returns. One could forget about the underlying particularities. As Michael Lewis, who chronicles this project in Liar’s Poker, so colourfully puts it: ‘Thus standardized, the pieces of paper could be traded. All the trader would see was the bond. All the trader wanted to see was the bond. A bond he could whip and drive. A line which would never be crossed could be drawn down the centre of the market. On one side would be the homeowner, on the other, investors and traders.’[10] To make things even more certain, the bond could be insured. Issuers took to insuring the mezzanine layer with giants like AIG, who thought it good business. Insurance is the final step in the concretisation of this value, a legal guarantee that even in the event of catastrophic failure, the bond remains worth what it is worth. Backed by this apparatus, the credit rating agencies issued the highest level of creditworthiness to the senior bonds, treble-A, equivalent to the national debt of a healthy nation state. The interest payable on the super safe senior tranche, while still low, was much higher than the equivalent return on, say, US Treasury bills and therefore very attractive to pensions funds and public sector organizations.

For those constructing the bonds, the profits came in the difference between the interest received and the monies paid out. The quickest way to increase this spread, as it was known, was to lend at higher interest rates, and to do that one had to make riskier loans. A parallel technology of credit scoring had emerged in the United States over the previous decade and it made it possible to issue such higher-risk, higher reward loans. These became known as sub-prime, a category of borrower with a creditworthiness scored below a certain level, suddenly accessible and tractable to lenders. In episode four I explained how theories of adverse selection suggest that banks should not be chasing high risk – high return loans. But if the thrifts were able to pass on the debt to investors, they no longer cared about the risk, and they rapidly became brokers on commission, interested only in the volume of mortgages they could issue and pass on.

We now have to look sideways, to the corporate banking departments of Wall Street, who were in the 1990s inventing a similar structure. Constrained by new regulations, they sought to shift risk from their balance sheets so they could lend more. They constructed tranches of corporate debt which paid out in the same way as the mortgage bonds, the earliest defaults being taken by the junior tranches which earned more interest and were bought by specialists, the mezzanine level sold to more conservative investors. The super safe senior level offered such low returns that it wasn’t worth selling so the issuers held on to the bonds, shifting them off their books by means of insurance.

The CDOs, or collateralised debt obligations as they should properly be known, were initially successful but were badly hit by the dotcom collapse and subsequent recession. Mortgage bonds continued to do well, so a new practice arose in corporate debt offices. They began to use mortgage bonds as the underlying material for CDOs. What made this so attractive was the fact that the high-paying risky junior tranches from a number of bonds could be scrabbled together into a CDO that would pay out at much lower rates. Indeed, the riskier the underlying tranche, the higher the income and the bigger the gains to be made on the deal. A canny trader would book the total profit from the life of the bond upfront and demand a bonus on that basis. The Wall Street tail soon began to wag the dog and the demand for high-risk mortgages led to a massive explosion in borrowing, a moment captured by the movie The Big Short: two wide-boy, white mortgage salesman in a tacky country club in Florida, boasting of their loans to migrants unable to read the small print. In real life, as a substantial amount of scholarship has shown, predatory lending was directed disproportionately at black and Latino communities previously excluded from mainstream lending.[11]

These devices for creating future certainty depended upon certain assumptions to make the un-knowable concrete and tractable. One such was the idea of correlation, the extent to which defaults are dependent upon one another. MacKenzie has found that measures of correlation for debt based bonds settled around 0.3. That was a most conservative assumption: if one third of American blue-chip business simultaneously defaulted on its debt there would have been an economic Armageddon. If you have been following my explanation, however, you will have by now spotted a flaw that eluded the great minds of Wall Street.

Bonds are a device for creating future certainty, and the future certainty created by the mortgage bonds is that all of the defaults, wherever and whenever they might arise, will end up in one place. If you take a bundle of those low, risky tranches you will find that you are holding not some but all of the defaults on the property market, and that a relatively tiny movement in the underlying portfolio will completely destroy the value of the bond. Donald MacKenzie puts it politely when he remarks that the lunch of diversification was being eaten twice; one of Lewis’ characters in the Big Short shrieks ‘but the more we looked at what a CDO really was, the more we were like, Holy shit, that’s just fucking crazy. That’s fraud. Maybe you can’t prove it in a court of law. But it’s fraud.’

With the exception of a few sceptical hedge fund managers, nobody seems to have figured this out. MacKenzie suggests that the problem lies in the organisation of the banks, with large departments who didn’t talk to each other re-duplicating a process and therefore destroying its benefits. Certainly AIG didn’t know, or it wouldn’t have insured the super senior tranches and suddenly found itself needing $182.5 billion in taxpayers funds to meet its obligations. Those sceptical hedge fund managers – the hero of The Big Short – found that the only way they could bet against the market was to buy insurance against default, thus reifying the speculative value of the instruments. Worse still, their premiums could be used to make copies of the mortgage based CDOs that amplified eventual losses enormously.

These deals offered an ‘irresistible arbitrage opportunity’, as MacKenzie puts it. An arbitrage is a risk-free profit, free money, but it was only risk-free for those constructing the deals. At one end of the trail are poor Americans, whose adverse credit ratings and lack of financial skills made them easy prey for the issuers of mortgages so constructed as to lock them into economic bondage. These people were disproportionately black, Latino, or migrant. Their future repayments were sold on, packaged and repackaged, underwritten by insurance. Sophisticated financial instruments backed by novel ways of measuring and counting – the Gaussian copula, soon to be known as the formula that blew up Wall Street – allow the solid value of brick, concrete, and the steady stream of hard won weekly wages to cross to the realm of financial circulation.

When the whole turns out to be phantasm and doesn’t so much tumble down simply evaporate, nation states produce bailouts to the tune of thousands of billions of dollars. Only in one country, Iceland, were prosecutions made. The after effects linger a decade later. The U.K.’s policy of austerity, a deliberate attempt to balance the national books for the benefit of those financial classes that depend upon such things, has hollowed out the national infrastructure in ways that have become terribly apparent in the country’s response to Covid-19. Here too the BAME community has suffered worst.[12] The credit crisis bailout is eerily reminiscent of another, then the largest in British history. By the time of abolition slave ownership was so thoroughly imbricated into British society that the government was forced to produce an enormous bailout to compensate individual owners. Slavery, like the banks, had become too big to fail.

Let me be precise. I’m not claiming that contemporary finance employees whips and manacles, even metaphorically, or that Wall Street is as bad as Gregson and his clan. I am saying that there are regimes of dominance and exploitation at work in contemporary finance, still. If you doubt me, take a look at the uncanny similarities between the strategies of cutting-edge philanthro-capitalism and the slave owners.

Social theorists Zenia Kish and Justin Leroy notice the Zong massacre too.[13] For them, it is a ‘cautionary tale of how moral outrage at instances of overt racial violence can obscure the more subtle and persistent relationship between race and finance… the fact that England’s financial development over the previous half century was predicated not only on compelling African bodies to work but also on innovating ever more creative ways of extracting value from those bodies.’ Slave owners in the US used the bodies of their slaves as collateral against debt and capital for expansion; training the children of slaves, born into bondage, as artisans greatly enhanced the future capital streams available and the value of those assets. Economic practices constituted the living slave as not just a source of labour but also the basis for financial speculation, allowing the slavers to benefit twice. Here, argue Kish and Leroy, modern finance offers an uncomfortable parallel. Since the financial crisis, financiers have sought to bring their capital to the benefit of social good and have invented instruments that invest in various social impact projects, with returns triggered when the target population hits certain milestones. So prison inmates, or young offenders, or members of whatever social stratum is considered disreputable, undesirable and costly become recast as potential investments. Where they had previously been a cost to society they become incorporated into ‘financial systems that invent new ways to generate capital returns for others out of the risks personally shouldered by subprime subjects.’ Finance wins twice, praised for ‘solving’ (in scare quotes) the very same problems that it has benefitted from creating.

In some cases, such as the application of such programs to prison inmates, we cannot even claim that the participants are free. There really are manacles. And real poverty is as hard and binding as steel. Such clouds hang, for example, over the fashionable bottom of the pyramid program, the argument that multinational corporations should take the lead in fighting global poverty by teaching the world’s poorest folk to become consumers. Or the global trade in organs for transplantation, from poor brown bodies to rich white ones, with compelling empirical evidence that kidneys are sold only by those most disadvantaged and most trapped in debt.[14]

From Tom Wolfe’s description of the bond trading floor – well educated young white men baying for money, through Michael Lewis’s account of the whitening of Salomon Brothers in the 1980s, to Karen Ho’s ethnography of the gendered, racist and classed valences of smartness in Wall Street, we know that those at the top of financial markets are white. In this episode I have made explicit the corollary, that those at the bottom are black, brown, Latino, migrant. White markets need black markets.

So what about William Roscoe, my famous abolitionist ancestor? He voted for abolition and faced physical reprisals for doing so. He was brave. But even he did not entirely reject the commercial realm of value when it came to abolition: he voted in Parliament for compensation for slave owners. Though he was horrified by the cruelty of the bodily trade, he could not escape the patterns of capital that underpinned it. He owed his legal practice and his bank to just that capital. Perhaps he thought that slavery had to be reformed from the inside. It strikes me that Roscoe’s position was uncannily like that of the critical academic in a contemporary business school: seeking to give voice to the injustices that flow directly from the system that pays our salaries; playing the game, warily, ironically, but playing it all the same.

In fact, we haven’t been nearly as brave as Roscoe. We nip the hand that feeds us, but not too hard, as we earn a comfortable living from the expropriations that underpin contemporary globalisation. Not directly, but that’s the point. No one gets out of this cleanly. Statue toppling may be justified and cathartic, but the emphasis on spectacle as a moment of change can hide the fact that Colston’s history – and Gregson’s and Roscoe’s – is still with us. There’s a lot to set right: reforming our curriculum, our institutions, and of course, our financial markets. Telling better stories about how the world might be, and enacting them through our own practice and habits. It will be difficult.

Still, I’m certain that it’s better to be a Roscoe than a Gregson, and the fact that his bank collapsed and he was run into bankruptcy helps assuage the thoughts of tainted money passing through the generations. Though I wouldn’t have minded if we could have hung onto the Leonardo.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe. Thank you for listening. Join me next time – for the last episode, when we’ll finally be building that stock exchange.



Sound effects under an attribution licence from freesound.com

Prison door lock https://freesound.org/people/RobertMThomas/sounds/151136/

Cash register: https://freesound.org/people/kiddpark/sounds/201159/




[1] For accounts of the massacre see, among others, James Walvin, The Zong: A Massacre, the Law and the End of Slavery (Yale University Press, 2011). and Ian Baucom, Specters of the Atlantic: Finance Capital, Slavery, and the Philosophy of History (Durham, NC: Duke University Press, 2005).

[2] Quoted in Anita Rupprecht, “‘A Limited Sort of Property’: History, Memory and the Slave Ship Zong,” Slavery & Abolition 29, no. 2 (2008).

[3] http://www.webdelsol.com/Facture/poems/mnourbesephilip.htm

[4] https://www.theguardian.com/commentisfree/2020/jun/08/edward-colston-statue-history-slave-trader-bristol-protest

[5] Walvin, The Zong: A Massacre, the Law and the End of Slavery, 57.

[6] Stella Fletcher, Roscoe and Italy: The Reception of Italian Renaissance History and Culture in the Eighteenth and Nineteenth Centuries (Routledge, 2016).

[7] Baucom, Specters of the Atlantic: Finance Capital, Slavery, and the Philosophy of History, 61.

[8] George Chandler, William Roscoe of Liverpool (London: B.T. Batsford Ltd, 1953).

[9] Quoted in Donald MacKenzie, “The Credit Crisis as a Problem in the Sociology of Knowledge,” American Journal of Sociology 116, no. 6 (2011). This paper informs much of the following account.

[10] M Lewis, Liar’s Poker (London: Coronet, 1989), 99-100.

[11] See, for example, the accounts in Justin P. Steil et al., “The Social Structure of Mortgage Discrimination,” Housing Studies 33, no. 5 (2018); Gary Dymski, Jesus Hernandez, and Lisa Mohanty, “Race, Gender, Power, and the Us Subprime Mortgage and Foreclosure Crisis: A Meso Analysis,” Feminist Economics 19, no. 3 (2013).

[12] https://www.theguardian.com/world/2020/jun/02/key-findings-from-public-health-englands-report-on-covid-19-deaths

[13] Zenia Kish and Justin Leroy, “Bonded Life,” Cultural Studies 29, no. 5-6 (2015). Quotations from p641 and p645

[14] For critical perspectives on the BoP seeSuparna Chatterjee, “Articulating Globalization: Exploring the Bottom of the Pyramid (Bop) Terrain,” Organization Studies 37, no. 5 (2016).; for organ markets see, e.g. Nancy Scheper-Hughes, “Keeping an Eye on the Global Traffic in Human Organs,” The Lancet 361, no. 9369 (2003).

Episode 16. Markets at the speed of light

This episode explores the technological transformations that have led to markets at the speed of light: algorithmic traders and flash crashes. Yet for all the images of terrifying AI we discover  that stock markets in the cloud are more rooted in material than ever before, pushing against the laws of physics in the pursuit of speed and profit. We see a culture war between hoodie and suit, techie and yuppie, but find – no surprise here – that whatever the uniform, the elites win out in the end.


FrankensteinThe Frankenstein story – the monster that bursts out of the laboratory and pursues its creator – is firmly embedded in our collective imagination. The novelist Robert Harris gives it a spin in the Fear Index, published in 2011. But the monster is not a thing of flesh and blood. It is an artificially intelligent trading algorithm launched by a Geneva-based hedge fund. It is fantastically, malevolently intelligent: able to penetrate secret files and to discover the worst imaginings of its creator, to conduct a reign of terror through purchase orders and sub-contracts. As its creator attempts to burn down the servers that house it, the algorithm uploads itself into the digital netherworld where it roams free, doing as its code instructs: feeding off fear for financial profit.

Harris has a keen ear for details in the news, and the financial cataclysm sparked off by this machine actually took place, just over ten years ago, in the afternoon of 6 May 2010. A wobble in the US markets, and then a spectacular collapse: the Dow Jones losing 998.5 points in 36 minutes, a trillion dollars of capital evaporating in five. Circuit-breakers – automatic cut outs designed to stop the market self-destructing – halted trading. When the market opened again, prices climbed quickly back to the morning’s levels. Although individual traders may have made or lost fortunes (we don’t know – and Harris deftly weaves fiction into the gap) very few ripples spread into the economy as a whole. This was the ‘Flash Crash’.

There may have been fear but there was no panic, no shrieking or shouting. The whole affair was conducted algorithmically, as high-speed trading machines did the electronic equivalent of yelling ‘sell, sell’, unloading stock to each other at ever-falling prices, and creating a self-fulfilling cyber-crash. Algorithms don’t panic, but they do form expectations, and they do so in thousandths of a second.

An initial investigation found that a large sell order had triggered the flash. There was a veiled reference to a problem with the timing of data feeds, a technical, structural problem. If you follow the news in the UK, though, you might have heard of the Hound of Hounslow, Navinder Singh Sarao, a solitary London trader with unusual personality traits who built an engine to ‘spoof’ the Chicago algorithms and made millions trading from his bedroom. American regulators became convinced that his activities had sparked off the crash, though this seems a lot less plausible than the fiction of malevolent artificial intelligence. Sarao may have made $70 million but most of his money seems to have ended up in the hands of fraudsters and questionable entrepreneurs. The only thing he purchased was a second-hand VW which he was too nervous to drive. He was extradited to the United States to face justice. The judge, expecting a criminal mastermind, saw instead a 41-year old man with autism who still lived with his parents and laid down a lenient sentence of a year of house arrest, even if Sarao had threatened to cut off the thumbs of a market administrator.

Hounslow, for those who don’t know London, is an unremarkable borough to the west of the city: suburbs, offices, few tourist attractions. Though the pun on Wolf of Wall Street may have been too tempting to avoid, it tells us something. In the place of the champagne and cocaine fuelled highlife of Jordan Belfort, we have a super-trader in an upstairs bedroom clad in hoodie and jeans, the global uniform of the techie. The Hound is just one manifestation of the culture war that has shaped financial markets over the last two decades: hoodie and baseball cap versus shirt and tie, techno wizard against Princeton-educated Master of the universe. That he was extradited to America and tried for market malfeasance shows, however, that market and state still walk hand in hand, whatever uniform the managers are wearing. That the only person of colour in this whole narrative so far is stood in a court of law says something else about financial markets, something that needs to be dealt with in a later episode.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe and I am a sociologist interested in the world of finance. I teach and research at the University of St Andrews in Scotland, and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. It’s been a while since the last episode, my apologies, but there is some stuff going on. If you’ve been following this podcast, however, you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. As well as these, I’ve been looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

Markets populated by algorithms scarcely understood by their creators raise all kinds of new and pressing problems. Fictional physicists living in Geneva and leveraging their experience of quantum mechanics into monstrous artificial intelligence; autistic coders living with their parents; transaction speeds that push up to the possibility of natural laws; there’s something different in contemporary finance…

This episode is all about the technological projects that transformed financial markets beyond recognition. I need to offer a caveat here. Ethnographies of high finance are not at all my domain, and I’ll be relying more than usual on the work of colleagues: Donald MacKenzie, Daniel Beunza, Juan-Pablo Pardo-Guerra, Christian Borch, Anna-Christina Lange, Marc Lenglet and others. You’ll find full references to my sources in the transcript on the podcast website.

We can think of changes that have swept through financial markets in two ways. First of all, they are a technological project driven by the endeavours of engineers. The result has been a wholesale transformation in the materiality of markets. To step into a trading pit now, and we can think of pit only in the most metaphorical sense, is to step into a warehouse of humming and chattering servers. Like the traders of old, they jostle for space around a central exchange, but space measured out in fibre-optic cable and milliseconds. We can also, though, think of these transformations in terms of a wholesale change in our understanding of how exchanges should work, as the metaphor that underpins them changes from one of the market as a fundamentally social entity to market as a computational device where efficiency becomes of paramount importance. The market ceases to be a concrete thing in a specific place and becomes a distributed network located nowhere, and everywhere: Wall Street, Chicago and Houndslow.[1] This change in our understanding of what the market actually is, what it is all about, reflects longer term moves in our understanding of the economy under neoliberalism. From von Mises and Hayek onwards we have grown accustomed to thinking of the economy – the market (in scare quotes) – as a vast dis-embedded computational device as opposed to a specific set of social and material situations.

Let’s start with a story of technological progress. We may recall from episode eight how automation had long been a dream of economists and policymakers who fastened on the possibilities for efficiency and surveillance that a mechanised market might offer: moving trades from the inaudible whispers of brokers to the easily supervised daylight of a centralised system. Pardo-Guerra’s study of the automation of the London stock exchange shows how the process began with the automation of tedious routine work of settlement and clearing, work previously conducted after hours in the rooms beneath the Exchange’s trading floor. Allowing the technologists in, even here, cracked open the closed world of the LSE. Treated at first like second-class citizens, the engineers built a series of systems that incrementally advanced the automation of trading until, on the day of Big Bang, 6 October 1986, the LSE opened in a fully electronic form. We saw in episode eight how this change took many by surprise, not least the LSE’s own management which had expected to operate a hybrid face-to-face and electronic trading system. But within days the trading floor was dead, and within months it had been closed. The engineers had built their own networks of power within the organisation and suddenly they were running the show. We saw how TOPIC, the LSE’s dealing screen, augmented by the FTSE 100 trigger page, created a completely new space for the market: a series of digital representations of trade accessible anywhere. It was still, however, a hybrid solution with dealers advertising prices that would be transacted by phone or voice, ‘folding’ existing practices into a new technological arrangement; the engineers’ institutional advancement did not really upset the money-making hierarchies of the LSE.

A different kind of challenge came from outside the LSE. By the mid-1990s, as Pardo Guerra shows, an industry had sprung up in the provision of computerised infrastructures which could be bought almost off-the-shelf by anyone with the desire to set up a new exchange. “Within this sprawling ecology,” he writes, “there was increasing recognition of the dominant design… electronic order books that allowed for the direct interaction of instructions from investors without the intervention of humans to coordinate transactions.”[2] Three engineers, named Peter Bennett, Michael Waller-Bridge and Stephen Wilson, had spent years at the LSE trying to set up a pan-European order book system. Blocked in this endeavour they set out on their own. They called their start-up system Tradepoint, and parked it symbolically out of the City, in the architect Lord (then Richard) Rogers’ building in Thames Wharf, also home to the renowned River Café, the first of London’s great stripped-down continental-fare gastro hubs. All of this was a performance, even if the restaurant did help bring visitors to the office and allow them to make their case on home territory. What was it a performance of? Of difference, of outside status, of the power of technology to break up cliques and upset apple carts. Another performance took the form of a ‘computer room’, an ordinary room equipped with a huge ventilation duct and mains cable, out of bounds apart from the sign on the door, that helped to convince visitors that the market was backed by sufficiently weighty technology. In reality, the computer system was quite moderate, enhanced by the programming skills of a colleague Ian McLelland, who customised a software package bought off the shelf from the Vancouver Stock Exchange. As for the upset apple carts, that was a performance as well: Tradepoint brought to bear an impressively deep network of social relationships with existing players, including making an agreement with the London clearing house and inviting its boss, Sir Michael Jenkins, onto the Tradepoint board.

There was, as Pardo Guerra points out, a moral imperative to the Tradepoint offering: ‘by allowing competition beyond the control of the LSE’s market-makers, their electronic order book would narrow spreads, driving down costs for end investors’. The order books, and the practices that came to be associated with them, notably anonymity, were attractive to overseas investors, derivatives trades and hedge funds. It was a venue for early robot traders, market participants ‘represented by installed boxes literally sporting flashing lights’. Tradepoint never amassed the volume of orders necessary to be a commercial success, but it did, in Pardo-Guerra’s words, change ‘the language of what was possible and permissible’[3].  Although an attempt in 1995 to forcibly introduce an order-driven system led to a members’ rebellion and the sacking of chief executive Michael Lawrence, order-driven trading was now inevitable and in October 1997 the LSE introduced its new system, SETS. Order books began to diffuse through the institution from the most senior markets downwards.[4]

Pardo-Guerra’s observation that Tradepoint changed the language of the possible is crucial here. It takes us back to our second causal factor, the evolving understanding of the purpose of an exchange. Moving away from thinking of a stock exchange as an institution rooted in geographic and social place to a distributed network of information processing shifts what we value. Speed, efficiency and structural elegance are the things that matter. This is the engineer’s aesthetic rather than the financier’s and it flows from a wellspring of technological expertise. But you will remember also our account of markets as comprising organisational fields, a social theory that sheds light on the evolution of institutions as high status actors seeking to consolidate their advantages at the expense of the less powerful. As the Tradepoint episode shows, these new technologies and conceptions of market organisation become the next battleground in struggles for institutional dominance. You might recall how, when the LSE designed its junior market AIM, a group of influential market-makers managed to hold off electronic order books and preserve their profitable positions. But order books remained a contentious issue and by the early noughties, with AIM internationalised and home to stocks larger than British SMEs, the LSE began to employ them in its junior market. What could the market makers do? External competition seemed to be the only way for the market-makers to resist the power of the LSE but there was no competitor ready to hand. Or was there?


We left OFEX in dire straits, with a failed fundraising, and the Jenkins family evicted from the firm. Into this void of leadership stepped Simon Brickles, the barrister who had been instrumental in setting up the constitution of AIM and had later become head of the market. He had left the LSE in 2003, frustrated by an increasing emphasis on order books and its move away from his vision of a market with light-touch regulation, a high temple of capitalism. Brickles sensed that the way out of OFEX’s problem was a headlong charge – not away from the LSE but towards it.[5]

His shareholders agreed. The market-makers who had supported the rescue fundraising to become major shareholders in OFEX were chafing at the high fees imposed by the London Stock Exchange – now a demutualised and revenue-focused global corporation – for settlement and transaction. The European MiFID regulations, expected in 2007, sought to open up competition between markets, but there was no possibility of competition unless a vehicle to challenge the LSE could be found. Brickles therefore began to expand the market’s offering. The company announced a £2.5 million fundraising to pay for an expansion in the number of securities traded, stating ‘the company intends to markedly broaden its existing trading services to encompass an extended range of securities. The enlarged trading service will allow brokers and investors flexibility in selecting their execution venue’. In other words, the junior market was to be positioned as a direct competitor to LSE’s smaller company markets and AIM.  On November 10, 2005, the Times reported a private meeting at the offices of mid-tier broker Charles Stanley: ‘Present at the meeting were representatives from Stanley and dealers such as Seymour Pierce, Peel Hunt and Winterflood Securities, which has led the opposition to the LSE. Some brokers are upset at the extension of the LSE’s SETS part-electronic trading platform to various small-cap and AIM stocks, for which they claim it is unsuitable.’ And there you have it, an outbreak of strife over the rights and privileges to make money in the markets.

On 30 November 2005, after a period of intensive work, the PLUS service (as it was now called) was launched. It enabled brokers to trade any stock on the Official List, ‘everything from Vodafone, down to the smallest FTSE All-Share.’ But it was not yet a fully-fledged stock exchange and another funding followed, pegged to the ambition of achieving a licence as a Recognized Investment Exchange. According to the offer document, the firm, currently focused ‘on providing cost-effective quote and trading services dovetailed to the needs of small and mid-cap companies… is seeking to expand into offering services to meet the quotation and trading needs of larger companies and the UK institutional community.’ In February 2007 the offer, heavily oversubscribed, valued the company at £43m.

Central to the whole endeavour was PLUS’ trading system. It had to be fast. Tradelect, the LSE’s new £40m system, went live on 18 June 2007, cutting order processing time to 10 milliseconds and greatly reducing trading costs. PLUS’ efforts show that the process of setting up a new stock exchange had evolved from a primarily social to a material and technological project. It ordered a platform from the Scandinavian firm OMX, but that was just the start: it needed to connect to market-makers, brokers, data vendors and the internal surveillance system. It had to be robust. It was, as Brickles said, ‘a huge spider’s web, and if any one of those bits of the spider’s web doesn’t connect you cannot launch the market.’ July 2007 saw the granting of the RIE license, and the OMX X-Stream platform launched in November, just as MiFID came into force. Both took up quantities of management time and were finished in time for the November deadline: ‘No mean feat. We were running pretty hard’, said one of the executives.

But, as Tradepoint’s founders had clearly understood, starting a market isn’t just a technological project. PLUS’ concentration on the material infrastructure perhaps overwhelmed the social and discursive labour involved in setting up a new exchange. Despite a shared management expertise, PLUS failed to engage in the processes that had made the AIM launch a success: prolonged, interactive consultation with the investee community. Indeed, many in the smaller company community felt that PLUS was no longer seriously committed to its original constituency. They levelled the same critique that PLUS had been making against the LSE: a steady drift upstream towards bigger companies and more lucrative business. John French, the businessman who chaired the advisory panel, described the task of maintaining a focused market for smaller company shares as being like ‘pushing water uphill’ in the face of scant interest from institutional investors and the market’s own management.

Any doubts over the market’s direction of travel – from smaller company nursery to discount trading and trade reporting venue – would have been settled by the Turquoise affair, a significant and ‘traumatic’ distraction for management in the autumn of 2007. Turquoise was a dark pool, a lightly regulated trading venue, that would offer anonymity and low fees. Like PLUS’ move to compete with the LSE’s small-cap markets, Turquoise sprung from the fact that in the mid-2000s ‘people hated the LSE,’ then run by Clara Furse, ‘it was…vicious.’ It had formidable backers, a number of senior executives of global investment banks , ‘big swinging dicks,’ according to one interviewee, ‘…big players, nothing to do with small company investing but big players…[who] got it into their heads, probably rightly, that the LSE was taking too much of the pot in trading terms…’ Although it had first been mentioned in the press in April 2007 it had not made much progress, earning itself the sobriquet ‘Project Tortoise’. These executives needed infrastructure and expertise in market operation, and on 6 October 2007 the Daily Telegraph ‘revealed’ that PLUS was negotiating the terms of a ‘takeover’ with Turquoise, while the Independent announced a ‘merger’. PLUS shares were suspended at 28p following the announcement of a ‘non-binding heads-of-terms agreement with a third party’. But nothing happened. By 19 October talks were over, and Turquoise was reported as looking for a deal with Cinnober, a Swedish technology firm. Still no progress was made and eventually the whole thing was quietly absorbed by the London Stock Exchange, now run by the shrewd and politically aware Xavier Rolet.

By the early noughties, then, we have reached a situation where the scuffles between markets – battles for domination and profit among rival market participants – are played out through technological systems. The ‘market in markets’ longed for by regulators materializes quite literally in the wires of market systems and the code that flows through them. US markets followed the same trajectory. Throughout the 1970s and 80s ongoing institutional bricolage had led to the electronic NASDAQ system, where brokers displayed prices and dealt with each other by phone. Although the network spanned America, it encoded existing patterns of dominance and buttressed the power of the New York Stock Exchange and NASDAQ’s broker-dealers. These latter colluded, at least by habit and practice, to offer prices in even-eights only, keeping the commission to a quarter of a dollar per trade.[6] At around the same time, the New York Stock Exchange was mired in its own scandals, including the payment of $139m to CEO Richard Grasso as a ‘compensation package’ – the number so big it certainly warrants a euphemism.

The scene is right for a coup, or at the very least a culture war. Just as Tradepoint had set itself up as a self-consciously outside challenger to the LSE, all River Café and Thames Wharf, so in the US a new generation of code-writing techno-libertarians started to play in the markets. Their innovations cracked open the long established monopolies of NASDAQ and the New York Stock Exchange.

A subset of the NASDAQ automated system was the small order execution system, or SOES. After the crash of 1987 when market-makers just stopped processing orders, regulators made it compulsory for brokers to publish quotations and honour them. The unexpected consequence of such a move was that it provided a facility for outsiders to day trade smaller sums in the NASDAQ markets: youngsters in T-shirts and jeans and baseball caps staring at screens and hoping to catch out the brokers with a speedy click here or there. Traders congregated in the offices of firms like Datek with its headquarters in Broad Street, just round the corner from Wall Street. These youngsters became known as SOES bandits, revelling in their outsider status as they needled the established players in ways that transgressed the established etiquette of trading. Tensions often flared. MacKenzie and Pardo-Guerra quote an episode where a member of staff of a NASDAQ broker-dealer located at 43 Broad St, infuriated at being ‘SOES-ed’ by Datek’s traders, crossed to no 50, and barged into Datek’s trading room, screaming ‘You did it again, I’ll fucking kill you!’ He leapt at one of the Datek traders, so a more senior trader picked up a letter opener and stabbed him forcibly, fortunately only in the shoulder. This trading was edgy, all-in, as another colourful detail shows – ‘No one blinked when a chalk-faced guy doubled over a garbage pail and puked violently, never leaving his seat and trading right through the puke’.

Josh Levine was an engineer who tumbled into this world. At Datek, Levine began to build hard and software hacks that avoided more longhand operations, for example allowing quick keystrokes, or hijacking the printer feed from a NASDAQ terminal into a computer system. These eventually became a slick trading system in their own right, helping to crack open the closed shop of the NASDAQ broker dealers: faster, sharper, leaner than anything NASDAQ could provide. A crucial step forward came when Levine realised that he could cut out the expensive NASDAQ dealers altogether by allowing Datek traders to exchange stock between themselves. This required a matching engine, and Levine built one. He called it Island. It had low fees and even offered rebates to those posting sell orders. Levine built systems that worked elegantly from an engineering viewpoint, completely rethinking the organisation of algorithm and exchange, a programmers aesthetic that valued speed and efficiency above all else. Trade time dropped from two seconds to two milliseconds; Island’s engine was so quick that users realised the distance between their own server and the central machine mattered, and the practice of ‘co-locating’ servers in the exchange building – for a fee – appeared.

The offices in Broad Street, Manhattan, maintained the flavour of the dot-com start-up: T-shirts, hoodies, junk food and eccentricities, but soon enough, as MacKenzie and Pardo-Guerra put it, Island became a continent. By 2005, through a series of acquisitions, it had become part of NASDAQ and transformed the giant exchange from the inside out, rebuilding NASDAQ’s technological infrastructure along the Island model. Other programmers moved from Island to exchanges elsewhere and spread the technology as they went. Traces of Levine’s code still flow in the veins of NASDAQ, and his vision of how the engine of the market might work has been enacted worldwide. Order books as we know them today began life on a screen surrounded by junk food wrappers, in the office of a day-trading outfit in a Manhattan backstreet. The hackers won, intellectually at least.

Technological upheaval transformed not just the exchanges, but also their customers. It wasn’t long before the robots arrived, the real world equivalents of Harris’ fearsome algorithm. Program trading, where algorithms made suggestions to brokers, had been around since the mid-eighties. Indeed they had taken some of the blame for Black Monday in 1987, but they still depended on humans to get the orders transacted. Levine’s Island was perfectly suited for entirely automated trading, even down to the hacker-libertarian politics. In another study MacKenzie tells the story of one such firm, based in Charleston, Carolina, set up by academic statisticians who had previously built a model to predict the outcomes of horse races and figured the methodology would transfer to the stock market. In good times the firm came to be one of the leading tech firms in the county, though these good times came and went.

What MacKenzie shows, however, is that for all the barefoot, T-shirt, take on the world hacker aesthetic, the firm only really flourished when it discovered pockets of systematic advantage that were already being exploited by human actors. So, for example, the programmers learnt about the SOES bandits and built an algorithm that mimicked what these humans were doing, looking out for tell-tale signs of big movements in the markets. Then it was a question of machine competing against human, a simple race where the ones outcompeted weren’t the incumbent NASDAQ brokers but the human bandits in Broad Street. Trading at that speed needed a matching engine capable of managing the order flow and the algorithm plugged straight into Island’s, sometimes breaching the order limit of a million trades per day. It was trading figures like these that forced NASDAQ to buy Island, inviting the algorithms into the mainstream. And, of course, once trading becomes a race then only speed matters and everyone has to run; some 90% of global stock trade is now conducted algorithmically.[7]

One of the ironies of high-speed trading is that, just as the market has slipped into the cloud, so designers have had to pay attention to the place where trading actually happens. HFT has foregrounded the brute material from which markets are made, and this material is political. Automated markets are housed in heavily guarded warehouses outside major cities, New Jersey in the US or Slough the United Kingdom. As the market is literally and actually made in these places, the speed with which prices travel back to the trading algorithms is crucial.  Co-location has become a sine qua non of high-frequency trading, with firms paying to locate their boxes as close to the exchange’s engine as possible. Links between exchanges come to matter. Michael Lewis’s book Flash boys is held together by the story of an extraordinary construction project, the building in secret of a fibre-optic link between New York and Chicago, drilling through the Appalachian mountains. Fibre-optic cables had already been laid along the railway track but that bends and twists through the mountains. The few milliseconds that could be saved by travelling in a straight line made the difference between being able to make a profit trading in the markets and never being able to do so. The investors who funded the line could hold traders to ransom. But the speed of light through glass is only two thirds of the speed of light through the air, so rivals have installed chains of microwave dishes between the cities, and finally a major project has built a line as close to the geodesic as possible. It’s faster on a clear day, but slower in the rain, and at certain phases of the moon the line is blocked by the tidal pull on Lake Michigan. We are literally at the limits of physics and yet, as MacKenzie points out, this is an economic arms race of the classic kind: enormously wasteful with huge rents being paid just so players can stay in the game. Even the players can see this: in the middle of describing how engineers have worked day and night to shave five to 10 nanoseconds from the processing time of specialised chips one of MacKenzie’s interviewees pauses to reflect that all that training, all that expertise could have done something else… something different.[8]

Though we might like to think of algorithmic trading as possessing the diabolic intelligence conjured up by Harris, it is much more a case of early bird catching the worm, where early bird is measured in power consumption, heat dissipation, and metres of fibre-optic cable. This in turn has thrown up serious questions about the fairness of high-frequency trading. Michael Lewis argued that we – pension holding, long-term investing citizens – are being scalped by these traders. Part of the difficulty is that algorithms are programmed to spot predictable trades and large buy and sell orders are by their nature predictable, despite the best efforts of brokers to hide them through their own high-speed slicing and dicing. Meanwhile machine learning and huge datasets have started to undo the formal anonymity of electronic exchanges as the most predatory algorithms learn to recognise and outmanoeuvre their more docile cousins.

Even if we do accept the necessity of high-frequency trading there are questions about how much the interaction order that we take for granted in everyday life – queueing, or telling the truth, for example – should transfer into the world of algorithms. In a recent blog, the sociologist Christian Borch has argued that culture is needed to prevent further flash crashes – there have already been several more. He writes about a group of firms working to introduce a better moral culture in algorithms; ‘they strive to eliminate any negative effects their algorithms may have on markets, and they have developed an ethos built on ensuring market integrity in every respect… these firms expend massive, ongoing efforts to comprehend how and why their algorithms behave the way they do, alone and together with other algorithms.’ Makers of algorithms must expend massive efforts to understand how they behave precisely because learning algorithms have a degree of autonomy. Indeed, writes the sociologist Kristian Bondo Hansen, algorithms have a tendency to over learn, making causal associations where there are plainly none and have to be taught to be good scientists, employing Occam’s razor and the principle of parsimonious explanation. AI turns out not to be so I after all. Hansen prefers to explain machine learning algorithms as a means of making sense of the swathes of noisy data that make up contemporary markets, distributed cognitive systems organised and curated by their programmers. But this is a circular defence; as so much of global equities trade is algorithmic, those same algorithms must be the source of that noise and HFT looks like the solution to a problem that it has itself created.[9]

All of which goes to remind us, once again, that stock exchanges have histories and organisational path dependencies that do much to shape their present form. We see in the development of cyber markets the outcome of a series of struggles between established players and new ones. Techno-libertarianism turns out to be just another elite discourse, just as gendered and riddled with privilege as the stock market monopolies it set out to crack open. Suggesting that culture can somehow be imposed upon high-frequency trading from the outside ignores the fact that it is there already: the engineer’s aesthetic, the junk food wrappers and Star Trek posters. And sometimes the establishment wins anyway. The story of PLUS tails off in 2009, with a pyrrhic victory on the courtroom steps after the LSE blocked PLUS from trading AIM stocks; the legal action had exhausted the smaller firm and when the LSE cut its fees its customers drifted back once more. The credit crisis did the rest.

Crisis seems an appropriate place to finish. For all the talk of culture and supervision and care for creation of algorithmic systems, contemporary cyber markets are fragile things. They can move so quickly as to out run even the exchange’s failsafe mechanisms. Hostile trading conditions created by predatory algorithms make it increasingly likely that institutional investors – the eventual users of equity markets – will attempt to trade over-the-counter in a situation that ironically parallels the organisation of AIM. Cyber markets are crisis markets, the material enactment of a narrative the market as a dis-embedded information processor, free from space and time. You can trace this story downwards, from the big ideas of liberal, then neoliberal, economists to the regulation and organization of markets. Or the other way, from the bottom up, through the technological projects of engineers and the mundane wires and circuits of finance through to a conception of markets as giant computers. We should allow both. No idea was born outside of the material world, just as every engineer who thinks markets might be better built has recourse to some imaginings of how things should be organized. Even if they are just ‘one day all of this will be mine.’

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe. Thank you for listening. Join me next time – for the penultimate episode, when we’ll be talking about crisis and exploitation.

Sounds under creative commons license from freesound.org

Server farm: cinemafia https://freesound.org/people/cinemafia/sounds/24080/

Computer chatter and war machine: ProjectsU012; https://freesound.org/people/ProjectsU012/sounds/361018; https://freesound.org/people/ProjectsU012/sounds/337249/

[1] This observation is drawn from Daniel Beunza et al., “Impersonal Efficiency and the Dangers of a Fully Automated Securities Exchange,” in Foresight Driver Review, DR11 (London: Foresight, 2012).

[2] Juan Pablo Pardo-Guerra, Automating Finance: Infrastructures, Engineers, and the Making of Electronic Markets (Oxfoird: Oxford University Press, 2019), 189.

[3] Ibid., 201.

[4] Michie, The London Stock Exchange: A History, 616.

[5] This next section is taken from Philip Roscoe, The Rise and Fall of the Penny-Share Offer: A Historical Sociology of London’s Smaller Company Markets (University of St Andrews, 2017), Other report.

[6] The SEC eventually launched a huge antitrust action against the broker dealers, with damages reported to be $910m in total. see Donald MacKenzie and Juan Pablo Pardo-Guerra, “Insurgent Capitalism: Island, Bricolage and the Re-Making of Finance,” Economy and Society 43, no. 2 (2014).

[7] Adam Hayes, “The Active Construction of Passive Investors: Roboadvisors and Algorithmic ‘Low-Finance’,” Socio-Economic Review  (2019).

[8] Donald MacKenzie, “‘Making’, ‘Taking’ and the Material Political Economy of Algorithmic Trading,” Economy and Society 47, no. 4 (2018): 518.

[9] Kristian Bondo Hansen, “The Virtue of Simplicity: On Machine Learning Models in Algorithmic Trading,” Big Data & Society 7, no. 1 (2020).

Episode 15. Opportunity lost

This episode explores how the forces of globalisation reshaped London’s small company stock markets. We discover how a commodities boom led to a gold rush in financing resource firms, and tumble into the pitfalls of exploration financing. We see the old hierarchies of politics and capital reproduced in this new sector and witness the eventual downfall of OFEX, the market we have followed since its inception. Along the way we meet promoters, anacondas, and of course, diamonds. With strong language and heavy dudes.


One morning in March 2000 I received a telephone call from a colleague, an older journalist now mostly retired but very well connected. We both were interested in the mining exploration sector, then starting to bloom on the London markets. He had some information and wondered whether I would like to follow it up. It concerned a South African mining outfit called Petra diamonds Ltd, then traded on the London Stock Exchange’s junior market AIM. He had got wind of a big deal heading towards Petra, but didn’t know what it was; he suspected that the chief executive, one Adonis Pouroulis, was seeking to take the company private against stockholders’ wishes. This certainly wasn’t the case – ironically, a quick Google reveals that just yesterday, 31 March 2020, Mr Pouroulis stepped down from the firm he founded 23 years previously. Back in 2000, in the overheated offices of Shares Magazine I spent two days telephoning everyone whose number I could get hold of and eventually reached Mr Pouroulis himself. He listened to my questions, thought for a moment and said, ‘you’d better come for breakfast.’

Breakfast was at the Cadogan Hotel in Chelsea. I’d never heard of it, despite its fame as the place where Oscar Wilde was arrested in 1895 on charges of gross indecency, and the fact that John Betjeman wrote a poem about just this. As one might expect from the place that Wilde chose to hang out with his louche pals, it was impossibly elegant. When I got to the breakfast table there were several men gathered, all suited: Mr Pouroulis, his deputy, Mr White, and a lawyer called David Price. My memory is a bit hazy, 20 years later, but I think that was his name. There was also the firm’s head of security – strange – and even more strangely a man who appeared to be connected to the Zimbabwean army. I’m convinced there were two others present who didn’t do much talking or breakfasting either. Pouroulis explained the proposed deal. Petra Diamonds was to become the vehicle for a reverse takeover – a kind of merger where the incoming company swallows up the host, keeping its name and, crucially, stock exchange listing. The incomer was called Oryx Diamonds, a firm registered in the Cayman Islands and run from Oman. Oryx’s business was operating a diamond concession in the Democratic Republic of Congo. As even I knew, the DRC was a spectacularly troubled country, with a history of destructive civil war, repressive government and a reputation for diamonds mined in the most oppressive circumstances and used to fund conflict: blood diamonds as they are known.

I don’t remember what I ate, if anything. I do remember, like a trauma memory, Pouroulis stirring honey into his coffee as he set out the specifics. The concession was worth $1 billion. $1 billion of diamonds waiting to be taken from one of the poorest, most violent, and most corrupt countries on earth. 40% of profits would go to Oryx (or Petra). 40% would go to Osleg, a company linked to the Zimbabwean army, which was charged with providing security on this immense mining operation. The Zimbabwean army was already in the area; Robert Mugabe had sent 11,000 troops to DRC to support Laurence Kabila’s government. The remaining 20% went to Comiex-Congo-Operation Sovereign Legitimacy, a company that David Price (the lawyer) vigorously denied being President Kabila’s slush fund.[1] These details became clearer over the coming weeks when the prospectus was published, but it was immediately obvious that there was a great deal of money at stake here, and that it wasn’t going to go to the people who one might want to get it. It was also, more slowly, becoming apparent to me, right then, over breakfast, that I was sitting with a group of truly scary individuals. Don’t get me wrong, I was habituated to market spivs and wide boys and the occasional East End loan shark, but these were of a different order. When one of them, I don’t remember who, asked me in a conversational manner what kind of a story I thought I might write, I replied that I would write a simple and informative news story. And that’s what I did, just a column’s worth. As an excuse I offer the fact that his voice maintained the kind of casual menace that one can only deploy if one has entire battalions of an African army, two dictators and $1 billion of undiscovered diamonds at one’s disposal. These were, as you might say, some very heavy dudes.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe and I am a sociologist interested in the world of finance. I teach and research at the University of St Andrews in Scotland, and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. As well as these, I’ve been looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

In June 2000, the Oryx deal hit the front pages. It was a good story, for the journalists at least. The deal documents were released in mid-May, and trading restarted in Petra’s shares, suspended on rumours of the deal. The firm indicated that it wasn’t planning to raise money upfront, but might soon be asking shareholders for contributions to exploration costs. All those diamonds still needed geographical surveys and preliminary digs before they can materialise on a balance sheet. Details became clearer. The concession had previously been owned by state-owned diamond producer, but was now owned by Zimbabwean registered Oryx Zimcom Ltd. Osleg was described as being controlled by the Zimbabwean government. Reports circulated that the venture would ‘reimburse Zimbabwe for its assistance to the DRC government in its war against rebel forces’ and that Comiex, the 20% stakeholder, was controlled by the DRC national army.[2] As the June listing date approached, Geoffrey White argued that the venture had a social mission to provide jobs and stability, ‘a semblance of normalcy in the region’. Newspaper stories hardened. ‘In a move of astonishing disdain, greed and ruthlessness,’ wrote the Sunday herald, ‘President Robert Mugabe, who has demanded that Britain compensate whites whose farms he is confiscating in Zimbabwe, plans to raise money on the London Stock Exchange this week to enable him to exploit Congolese diamond mines captured by his national army.’[3] The Foreign Office was said to be exerting pressure behind the scenes, and Grant Thornton, the giant accountancy firm, wrote to Oryx to say that it would no longer act as its adviser, the professional service firm responsible for supervising a listing on AIM. The London Stock Exchange made clear to Oryx that it would not be welcome. Petra, remained defiant, a spokesman saying: ‘There are companies on the London Stock Exchange who are selling jets to dictatorships and whose guns are being used to arm children – why should a legitimate mining operation be blocked?’[4]

But it was blocked anyway.

Listeners who followed the formation of AIM in episodes 11 and 12 may remember how the market was set up with the mandate of powering UK plc, funding entrepreneurial businesses across the British regions. But here we have a deal spanning Africa, the Middle East and the Cayman Islands, a heady Dogs of War story of diamonds, despots and tax havens. Something has surely changed.

Let’s pedal back a little way. At the end of episode 13 we left junior market OFEX crippled by the market downturn following the collapse of dot-com exuberance. AIM, on the other hand, wasn’t faring too badly. By the middle of 2001, AIM was claiming to have attracted 800 companies and raised £7bn since launch, pointing to a failure rate of a ‘more than respectable 3%’.[5] In the aftermath of the dot-com boom, the City as a whole looked overseas for new business, and AIM’s focus began to move away from the entrepreneurial flourishing of UK plc. This was in keeping with the spirit of globalisation sweeping through the world’s economy, but there was also an immediate, pragmatic motivation for this change. Throughout the autumn of 2000 the LSE had been fighting a hostile takeover bid from the Swedish stock market operator OMX. The third and final defence document, published on 19 October, sets out the Exchange’s vision for building the business: Don Cruickshank, the LSE’s chairman, explicitly promises to develop AIM and techMARK as international markets. The document boasts that the LSE already has the largest growth and technology market in Europe and that it was ‘now committing to reposition techMARK and AIM as international markets by,’ and I paraphrase, working hard and spending money to attract businesses from across and beyond Europe.[6] London had expertise in the exploration and oil and gas sectors already, thanks to the North Sea, and this could be easily repurposed to serve the international mining community. Thanks to the new Sarbanes-Oxley legislation in the USA, introduced in 2002 the wake of the Enron and WorldCom scandals, London was now a friendlier place to list in regulatory terms, especially as AIM had managed to opt out of European exchange regulation. Most importantly, London had investors with money who were willing to sink it into commodities exploration firms.

Why this interest in commodities – mostly of the kind dug out of the ground – all of a sudden? Globalisation, once again. The first decade of this century saw a massive expansion in demand for commodities. China’s vast economic expansion led other nations, the so-called BRICS, in an insatiable demand for building materials, energy sources, and the other raw materials of industrial production, such as copper, tin and aluminium. Rapid development of technological infrastructure and the invention of the smart phone required an unprecedented volume of rare minerals, much of which came from countries like the DRC. By 2001, observers were already worrying about the destructive effects of this extraordinary demand in Africa,[7] and by 2008 commodity prices had become a source of concern for policymakers worldwide. Crude oil prices increased from $25 a barrel to $70 a barrel in the five years from 2002, as China’s consumption increased by 50% to 7.6 billion barrels a day over the same period.[8] (As always, references are provided in the transcript on the podcast website).

For the makers of markets, a spike in demand is always an opportunity. Although this boom crashed first of all through the commodities markets, London’s stock exchanges were swept up in its wake. This was largely a consequence of a division of labour that had evolved over the previous decades in the markets, which was itself a result of the notions of shareholder value that had come to organise corporations’ relationships with stockholders. Put bluntly, exploration is too expensive and too risky for chief executives who are paid to increase shareholder value. That phenomenon is not confined to commodities: in recent decades giant pharmaceutical firms have scaled back their research and development, as have biotech firms. It is one of the many reasons why we are so underprepared to face the current pandemic, as well as the other lurking threats of antibiotic resistance and climate disaster. Instead, large firms have subcontracted the early-stage research and development process to small, privately funded exploration firms. These take the risk, or rather their shareholders do, and if they discover anything of promise are promptly bought up by the industry giants. Shareholders in firms that literally strike gold do so metaphorically as well. Others end up with nothing.

In the early noughties, a whole raft of prospectors and promoters dusted down their maps and exploration permits, and came to the market. Geographical resources have to be proved up, and that’s an expensive process. Shareholders fund seismic mapping and exploratory drilling, and the unknown reserve slowly gathers shape and form on the small firm’s balance sheet.

Funding this takes  specialist expertise and AIM’s internationalization rapidly imported the resource-exploitation focused equity culture of the Australian financial community. Said one broker: ‘I went off to Australia for six weeks. I made a point of visiting brokers, and all they could talk about was mining. Mining, mining, mining. And up to a point I had shunned mining, because I always regarded it as being so problematic, why get involved? But you couldn’t ignore it.’

Of course, as the young journalist involved in covering the mining sector for Shares Magazine I was partly culpable. I’ve already mentioned that these executives often seemed much more concerned with cultivating their shareholders than their exploration permits, but sometimes even I was overwhelmed by their credulity – or mendacity, you take your pick. I remember meeting one, chairman of a small company quoted on OFEX. He was a genial and tweedy character, educated at Harrow and Oxford, the son of a distinguished parliamentarian. As he explained his business proposition I could only think that Oxford must have tightened its admission standards since the 1960s. He was raising money from private investors to buy a dredger and exploration permits from an outfit in Brazil, run by a bloke called Harry. Harry put his name on the company, and probably on the dredger too, which shows what a big deal he was.  There was little in the way of documentation available for investors. All they had to go on was an eight page report produced by a corporate finance adviser who himself sat on the board. As the chairman told it, the dredger was going to look for diamonds deposited in the rivers in a remote and bandit infested part of Brazil. He spun me yarns about guns and cowboys, precious stones and huge snakes. The one that stuck in my mind was the prospector swallowed up by an Anaconda, and the boys had to wait until he was completely past the snake’s head before they could lop it off and extract him. Unsurprisingly, the firm soon enough discovered a serious problem with its contractor, and cut its links with Harry. It kept the dredger; shareholders didn’t keep their money.

Oddly, this absurd outfit with its Frederick Forsyth backstory was one of the inspirations for my PhD thesis, giving me the suspicion that investors bought stocks to participate in the wild west of exploration at a safe distance, though that’s not what I found…

Resources exploration was a risky business. Even without the anacondas, there were plenty of traps for the unwary. One problem was the regular use of unusual share structures. These deals often needed a cornerstone investor to get them away, someone prepared to underwrite the whole thing and cover the costs of the corporate finance firms in the event of failure. There weren’t many people prepared to do that, and those who could named their price. One of the most celebrated was a man named Bruce Rowan, an Australian property developer who I came to know quite well. I came to like the old crocodile and certainly respected his business acumen, but one didn’t want to be on the other side of the table when he was cutting a deal. In fact my first encounter with him was exactly of this kind, as I was trying to raise money for a small outfit of my own at the heady peak of the dot-com era. Bruce came to visit me at the office with his sidekick Otto. He had a ponytail, leathery features and a no-nonsense Australian attitude. This latter saved me ever having to do a deal with him, as he thought my endeavour was pointless and made no bones about saying so. Business was a serious matter and he didn’t care for joking while he was working. I was told that somebody else, a renowned charmer, gave a fine presentation of his firm’s prospects, finishing, “and so, Bruce, I’m offering you this opportunity, I’ll let you have £50,000 worth of shares at 10p”. Bruce sat for a while, and replied, ‘Yes, very interesting, I’m starting at one pence.’ ‘One pence! Be serious, Bruce.’ Bruce looked at him and said, ‘Don’t you ever say that to me, again.’ Two hours later, he wrote out a cheque for fifty thousand, at one pence per share.

Bruce had made a fortune buying up former cinemas across Australia and turning them into shopping malls. For reasons unspecified he had brought his family to London in the late nineties, setting up home in one of the most famous and desirable streets in the capital. He then set about cornering the mining market. Perhaps it was his Australian background, and a familiarity with the practices of exploration finance, but Bruce knew what was going on in the market several years before anyone else had grasped it. By that time he had underwritten a host of junior exploration firms listing in London. When he did so he demanded a healthy share of the stock but also took a large number of warrants, options to buy additional shares at next to nothing. On the odd occasion when the geologists managed to find something valuable and arrange a deal with a big corporation, they suddenly found that they owned a great deal less of their firm than they thought, for Bruce had cashed in his warrants.

They couldn’t complain, for they had agreed to this arrangement in the first place; I can only think that executives focused on getting the deal away in the first place, preoccupied with their own salaries and employment, placed far less emphasis on the penalties attached to eventual success. There’s a psychological bias at work here, and I think Bruce knew that. Putting out what was petty cash for him, a few hundred thousand here, a million there, he could take account of the big picture, and he did. Somebody once asked him, “Bruce, is there any bloody gold in that mine of yours?” And he said, “I haven’t the vaguest idea, I invest in people.”


The other reason, perhaps, that the geologists and promoters didn’t complain was that they too had plenty of warrants to cash in when the right moment came. The people who really lost out were the shareholders of these firms, often buying in the secondary market with no real sense of the true structures of shareholding, something that has remained true in the more recent technology boom. In an unusually careful, by my standards, piece of forensic reporting I picked apart the warrant arrangements at one small oil firm to show that investors ended up with a piece of ground worth one and a half million pounds, despite having paid £2 million for it. These deals often just didn’t add up. This wasn’t one of Bruce’s, either. He could do the maths.

In other words, the dotcom excitement that had engulfed London in the late 1990s may have ended with a bump, but it had been soon enough replaced by another bubble. This one was driven, not by stories of capitalist utopias under the Internet, but by more prosaic accounts of nations rising into modern prosperity amongst belching smoke stacks and gaping furnaces, all hungry for oil and metal and concrete. As with the dot-com boom, the markets became places where this excitement was acted out more locally, places where you could get your hands on a little bit of future Chinese, Brazilian, Russian or Indian prosperity. They were shaped by global forces and, as always, the natural hierarchies of capital and politics reproduced themselves within them. Bruce, a big fish in our eyes, inhabited a fairly small pond; the gentleman having breakfast in the Cadogan Hotel hinted at what lay further out from shore.

Ironically, one company that was using AIM as its founders had intended was OFEX. Hit hard by the dot-com boom, OFEX had retrenched and set out to restore its reputation. It wanted to look like a proper market. From July 2000 the market was included within the insider dealing legislation, and in December 2001 it became a Prescribed Market under the Financial Services and Markets Act (FSMA). In 2002 it secured exemptions from stamp duty in line with the privileges available to a Recognised Investment Exchange (RIE). These exemptions and inclusions were the result of extensive lobbying by the firm and were ratified by the House of Lords. On 1 December 2001 OFEX finally became a market in the eyes of the law: ‘The Treasury, in exercise of the powers conferred on them by section 118 (three) of the Financial Services and Markets Act 2000 (a), hereby make the following Order: 4A. There is prescribed, as a market to which section 118 of the act applies, the market known as OFEX.’

On 4 January 2002, the market was moved into a new vehicle, OFEX plc, which absorbed the Newstrack operation. There was now a parent company, SJ&S (named after the original family firm) with two subsidiaries, the market maker JP Jenkins Ltd and OFEX plc. Jonathan and Emma Jenkins became joint managing directors of the latter. No longer operating a trading facility, JP Jenkins could target advisory revenues too. John Jenkins and Barry Hocken, having witnessed the ‘very comfortable living’ being made by corporate advisors bringing firms to market in the late 1990s, established their own advisory boutique called Gateway Securities. Advisory and market-making operations became physically separated from the market as they moved out of the existing offices and into Fenchurch Street.

Yet this reorganisation had an unintended consequence. As the firm sought to look more like a stock exchange, so it became more vulnerable to a downturn in trading and listing numbers, exactly what it faced now. During 2002 just 29 companies joined the market, and OFEX booked a pre-tax loss of £662,000. OFEX’s struggle to attract new issues was exacerbated by the fact that the fees available for AIM advisory work greatly exceeded those charged by OFEX practitioners and advisors tended to direct potential listees accordingly. JP Jenkins remained the sole market maker, a still profitable monopoly on trading in this super junior sector but this monopoly was regularly cited as one of the main reasons that institutions wouldn’t participate, so the family took the decision to open up market-making more widely.

Doing so would need infrastructure and infrastructure costs money, so on February 18, 2003 OFEX announced that it would list on AIM and in doing so raise up to £2 million at a valuation of £4.5 million. The decision to float on what many saw as a rival market was contentious. It was inappropriate in terms of the size and financial needs of the company, and for the operator of a small-company market to contract the services of another looked odd. OFEX was, in reality, the perfect OFEX company. In fact, the move was a technical, regulatory decision hinging upon the perceived competence of any firm to supervise itself as a listee on the market that it ran, while a clearly related company continued to be the sole market maker in its stock. ‘We got a lot of crap from that [decision],’ said one executive, ‘and we couldn’t turn round and go, “Look, the only reason we did it is because the FSA said we would. We think AIM is entirely the wrong place to be, for where we are and what we do.  We should be on OFEX.  We’re a classic OFEX company.”’

In April 2003 the offer got away, but only just, with £1.45 million raised rather than the expected £2 million. The market moved out of the family group and onto AIM as OFEX plc. August 2003 saw Teather & Greenwood join as the first new market-maker, and in November, Winterflood Securities also agreed to make markets in OFEX stocks, subject to the installation of a new quote-driven trading system. By July 2004 OFEX would claim that four firms – Jenkins, Winterflood, Teather & Greenwood and Hoodless Brennan – would join as market-makers and that each security would benefit from two-way quotes from at least two market makers. According to the press, the prospect of institutional investment seemed even closer. Rumours began to circulate that OFEX was getting ready to take on AIM: ‘In November, I said Ofex was flexing its muscles to challenge AIM, the Stock Exchange’s junior market. Now it is gathering the financial ammunition to strengthen its assault’, said veteran pundit Derek Pain, writing in the Independent[9]. Journalists suggested that the multiple market maker system, combined with the availability of institutional funds, made OFEX look an ever more attractive destination, especially as EU regulation threatened to drive up the costs of an AIM listing. Listed companies did not seem convinced: in 2003 OFEX offered to waive the listing fees of companies moving from AIM, and few, if any, took up the offer.

Still the company burned through cash, booking a full-year loss of roughly half a million pounds as it continued to work on its regulatory status. So OFEX decided to go the whole way; to raise a big chunk of capital and win accreditation as a RIE, or Recognised Investment Exchange, a move that would put it on an equivalent legal footing with the venerable LSE. It was going to shake off its reputation as an oddball family firm and head for the bright lights of mainstream finance capital. ‘We were going to become an RIE,’ says Jonathan Jenkins, ‘so we were going to raise £5 million. Dad was sort of retiring and stepping back, Simon was coming in as CEO, I was stepping back into the background a bit. We raised £5 million to do it and that was what we were doing.  I have the press release, I mean, we were that close.’


In the last week of September, 2004, disaster struck. Jonathan was at Bloomberg’s London office in Finsbury Square, addressing a group of retail investors.  ‘I can remember standing on the platform,’ he says, ‘on Monday night, saying: watch this space, there is some interesting news to come out and I think OFEX is going to go from strength to strength.’

There are moments when Fortune really excels herself, and this was one. While Jonathan was speaking, his phone began to vibrate in his pocket. It was only later, after the last investor had drifted away, that he listened to the message. It was from OFEX’s business development officer, a man of a Gallic temperament, given to moments of triumph and despair, and his voice was thick with tears. The cornerstone investor, a City individual of huge stature whose presence had helped recruit the others, had pulled out. It’s possible. It could also be that the investor had never actually committed any funds. One of the many mysteries of this particular affair is that no one seems to have checked that he intended to do so, and that £2 million of the needed £5 million was left unaccounted for. Whatever the truth, without this investor there was no new money.

It did not take Jonathan along to think through the implications. As a quoted public company he was still going to have to report his results, and without the additional funding things would not look good at all. There would be a bloodbath. A stock exchange is a fragile thing. Like a bank, it depends upon confidence to stay in existence. Punters tend to be much less keen to risk their hard-earned pennies by trading on a market soon to collapse – it would be like winning on the horses but the bookmaker shutting up shop. Firms are unlikely to go through the arduous and expensive process of securing a quotation if the exchange itself looks precarious. And regulators have a tedious habit of setting demanding capital requirements, which means you can’t just tighten your belt and hold on for dear life – the favoured strategy of almost every other company in trouble – if you happen to be boss of a stock exchange. Things can come unravelled very quickly, and on Wednesday they did.

Media reports spread word of the disaster, often with undisguised glee. ‘Shares in OFEX dive as it fights imminent collapse’, crowed the Times, ‘OFEX, founded by John Jenkins and controlled by his family, said it had only enough money to remain solvent for another nine weeks. The announcement precipitated a 54 per cent plunge in OFEX’s shares’, adding maliciously, ‘It is understood that the revelation of OFEX’s dire financial position took the company’s senior management by surprise.’ The Times spoke of ‘grim news’ for a firm that ‘did not do itself any favours when it decided to list its own shares on AIM’.

The marginally more sympathetic Independent reported that ‘an emergency fund-raising put together by the company’s broker, Numis, collapsed at the last minute, forcing the OFEX to admit spiralling losses and a looming cash crunch.’ Just one word makes a difference, and ‘emergency’, while full of journalistic vigour, puts OFEX in the crisis ward even before the funding collapsed.

John Jenkins, meanwhile, was stuck in China. Confident that everything was in hand, John – still chairman and a substantial shareholder in the company – had taken a trip on a group visa that prevented him from returning early. Over the next few days he was marooned on the other side of the world, unable to help as his company was ‘rescued’. At one point he dialled in for a meeting with the firm’s broker, now in charge of arranging the emergency placing – a necessary appointment perhaps, but a leap of faith bearing in mind the broker’s ultimate responsibility for the first, failed fundraising. The meeting began, as meetings do, with some pleasantries.

‘So, John, how’s the great wall of China?’ asked a young wag from the brokerage.

‘It’s a fucking wall! Now what have you done to my company?’ yelled John in reply, some way from his usual self.

Jonathan and his sister Emma, joint chief executives of the market, sorted matters out as best they could. The jackals were seen off. The original investors, bar one, came together and, on Friday 8 October they refinanced the business to the tune of £3.15m. But the terms were much harsher – I believe that Bruce was involved here – and, although OFEX was saved, it was the end of the road for the Jenkins family. Jonathan stepped down, embarrassed by his announcement and hurt by the vicious press comment, and Emma resigned alongside him. There were no golden executive pay-outs. John remained as chairman for a few more weeks until a replacement could be found. The family’s stake was diluted from 55% to 12%, and several hundred thousand pounds worth of loans that John had made to the firm had to written off.

The new bid still had to be ratified by shareholders at the end of October, and on Friday 29 October a group called Shield tabled a rival bid. It offered stock and cash, conditional on the Jenkins family remaining at the helm. Mindful of their obligations to their customers, to all who depended upon the market, and to the market itself, Jonathan and Emma rejected Shield’s offer – and with it the family’s future in the firm. It was with understandable bitterness that Jonathan commented to the press, ‘We’ve fought so hard to get this market back on its feet and now I won’t be a part of its future.’ But what really rankled, more than anything else, was the lack of acknowledgement for what the family had done to date, and for the sacrifices they had made in the end. ‘I don’t think we ever got acknowledged,’ says Jonathan, ‘All the noise was, oh look, they have fucked up, they have run out of money and everything else like that. Actually we got let down…then we did what we thought was the right thing.  Our severance pay was pathetic, but we did what we thought was right. It was the way that Emma and I were brought up, and Dad. We should do what is right for the marketplace.’

You might think that was the end for OFEX, and you would be right, up to a point. It was the end of one road, one story, of one particular style of trading that preserved, fossil-like, the patterns and manners of the old stock exchange. It was the end, I think, of a brave endeavour. It had become an anachronism, a longhand, local endeavour in a globalized, cybernetic world. But if you stay with me a little longer, you’ll see how the body of OFEX was resurrected to rival – briefly – the LSE, and how the spirit of OFEX lingers in some more contemporary possibilities for the rehabilitation for financial markets. We’ll get onto that next time.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe. Thank you for listening. Join me next time.

Sound effects:

Shovel https://freesound.org/people/Ohrwurm/sounds/64416/

Thunder https://freesound.org/people/BlueDelta/sounds/446753/

[1] Impressions of the breakfast meeting from memory, details of the deal from the archives. It was extensively reported in May and June 2000, see notes 2 and 3, also The New York Times, 26 May 2000, ‘African Diamond Concern to sell shares in London’, Alan Cowell, pC2.

[2] The Mining Journal, 26 May 2000, ‘Petra’s DRC deal takes shape’,  p418;

[3] The Sunday Herald, 11 June 2000, ‘Mugabe seeks hard cash from ‘blood diamonds’’, Fed Bridgland, p15.

[4] Accountancy Age, 22 June 2000, ‘A question of ethics’, Jerry Frank

[5] This and subsequent material is drawn from my own account of the markets. Sources are extensively referenced therein. There is additional material drawn from my own interviews.

[6] London Stock Exchange plc, Third Response to OMX’s Offer, October 2000, p.11. https://www.lseg.com/sites/default/files/…/documents/OMX-third-document-oct00.pdf [Accessed 6 March 2017]

[7] https://www.globalissues.org/article/442/guns-money-and-cell-phones

[8] Colin A. Carter, Gordon C. Rausser, and Aaron Smith, “Commodity Booms and Busts,” Annual Review of Resource Economics 3 (2011).

[9] The Independent (London), January 10, 2004, Saturday, ‘No pain, no gain: I’ve changed my mind about Ofex. I may even buy shares’, Derek Pain, Features p5.

Episode 14. Seeing and doing in the market

What better week to tackle fear and greed in the stock market? Under the shadow of global financial meltdown, this episode explores the nature of cognition in the markets: how market actors see, choose and act. Moving from the model of homo oeconomicus in the efficient market to the irrational animal spirits of behavioural economics, I find neither satisfactory, and explore an alternative, sociological concept of decision: that it is distributed across social and technical networks. We revisit the non-professional investor, and find that a distributed model of decision making can help us understand their sometimes idiosyncratic actions. *Updated with postscript!*


Well, it’s been quite a week in the markets, hasn’t it. The old saying has it that when Wall Street sneezes, the world catches a cold. It is probably in bad taste to observe that it is not Wall Street doing the sneezing, not yet at least, and that the rest of the world is doing its very best to avoid colds and much worse. Unless you have been living on Mars you will have noticed that there is a global pandemic on the way and that, as well as shutting down everyday life for an increasing chunk of the world’s population, it is playing havoc with industrial production in China, and, thanks to global supply chains, business everywhere else. Amazingly it took until the middle of last week for Goldman Sachs to point out that the wildfire spread of COVID-19 across the globe might damage US earnings – important to stick to consequences that matter – and already nervous stock markets collapsed. As did Flybe, the UK regional airline, already once rescued by the government, with other travel firms sure to follow. The Federal Reserve’s move to cut interest rates had little effect, the screens are bathed in red; money managers are working long nights and shoppers are hoarding loo rolls. What better week to discuss greed and fear – what Keynes famously called ‘animal spirits’ – in the stock market?

But are we so irrational after all? And is that even the right question?

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe and I am a sociologist interested in the world of finance. I teach and research at the University of St Andrews in Scotland, though I’m on strike quite a lot of the time at the moment, squeezing these episodes out in the odd day back at the desk. Anyway, to business: I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. As well as these, I’ve been looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

This episode is about how people see and do in the market: how they think and how they choose.

It’s probably best to start our thinking about thinking by thinking about what economists think when they think about thinking.

Economists have an idealised vision of decision which centres on the computation of potential payoffs multiplied by the probability of them taking place. Very crudely, if you have a 50% chance of making £10 and a 25% chance of making £20 your payoff from both is identical – 5 pounds – and you can do either. The economist is indifferent to other factors, such as the ethics of your course of action. The maths says the outcomes are identical and all else is metaphysics.

Of course, we can’t all be like that. The idealized creature that is able to purge such exogenous factors from his reasoning is the economic man, homo oeconomicus. I choose the pronoun wisely, because there is a long history both of fictional accounts and of scientific practices that locate reason firmly in the male person, while the female is emotional, irrational, and hysterical. This economic man is instrumentally rational, solipsistic and maximising; I am not sure whether the model of man or of decision comes first but the two are intimately linked. In the case of finance this translates into the efficient market hypothesis and its variants, which we have encountered already. The market, full of agents able to calculate the odds efficiently and accurately, makes sure there are no opportunities for profitable trade; these can only come from uninformed, noise traders whose sole purpose appears to be messing things up enough for the economic men to make a living trading.

There is an obvious problem with our friend homo oeconomics and his rational decision-making. Computationally this is very difficult, if not impossible. We can manage the sums okay when it comes to the roulette wheel, perhaps even the odds in a poker game – although those are already too much for me. But in any kind of real-world situation the possibilities are enormous and proliferate rapidly, one decision leading to another in chains of cause-and-effect that soon become infinitely complex.

Another possibility was suggested in the late 1950s by computer scientist and all-round polymath Herbert Simon. He proposed that decision-makers did not seek to find the best possible option, simply one that was good enough. Having picked the most promising option, they follow through a train of reasoning testing out consequences. If things look as if they will work out badly the thinker simply ditches one option and tries out the second best. Research has shown that emergency services and others working in high-pressure situations follow such protocols: firefighters arriving at a burning house, or doctors triaging patients arriving in intensive care. It’s a robust, quick and effective means of taking decisions under severe informational or time constraint. Simon called it ‘satisficing’.[1]

[siren sound][2]

There is another reason to doubt the existence of homo oeconomicus. In 1974, two experimental psychologists, Daniel Kahneman and Amos Tversky, published an article in the prestigious academic journal Science. It showed, on the basis of solid laboratory evidence, that humans, or human brains, were so programmed as to systematically and consistently miscalculate chance. The authors called these biases heuristics.[3]

There were, the scientists argued, three main categories of bias. The first is representative, where existing patterns are extrapolated into the future. The second is availability, where the ease with which an event can be imagined is linked to its perceived likeliness, and the third is to do with anchoring, where estimates may be skewed by the parameters suggested by, for example, an interviewer. These things have been empirically demonstrated in laboratories, and we may recognise them from everyday life. There is what is known as the hot hand phenomenon, where the sportsperson’s run of good form is deemed likely to continue. Every would-be lawmaking politician who asks their audience to imagine some terrible violation knows intuitively that imagining and expecting are closely linked. In 1979 Kahneman and Tversky added ‘Prospect theory’, the demonstration that people weighed losses more heavily than gains, making makes us naturally risk averse in our calculations.

For economists schooled in the theory of optimizing trade-offs, this was dynamite. People did not behave like the model said, and markets would not be entirely efficient. But – wonderfully – they behaved in a way that was predictably irrational, and a whole field of empirical science could be built around this. Dan Ariely, one of the most famous of these ‘behavioural economists’, as they became known, wrote a bestselling book with exactly that title: Predictably Irrational.

Kahneman and Tversky’s work has been enormously influential. The ambitious young graduate students of the mid 1970s who took their insights and built them into research programmes are now among the most senior members of the economics profession. We have been treated to a slew of popular books, each full of examples of the strange and wonderful (to economists) way that we think about things. Did you hear, for example, about the day nursery that introduced fines for parents who picked up children late, and found that lateness got worse? Of course you did! And were you surprised to hear that parents treated the fines as fees? I doubt it.

Names like Ariely, Richard Thaler, George Akerlov, Robert Shiller, and Kahneman himself, are well known outside the academy. They have influenced policy and practice, with governments embracing the behavioural tactic of nudging to get what they want. These theories have made their way into finance. It helped that the efficient markets model was bursting at the seams, unable to explain the persistent habit of bull and bear periods in financial markets that should be – logically – organised and stable. The behavioural perspective has become the default explanation for stock market boom and bust. Alan Greenspan famously referred to the ‘irrational exuberance’ of the dotcom era. People just got carried away! It was the same with the credit crisis. The film The Big Short includes a cameo from Richard Thaler and Selena Gomez. They are billed (in more than a nod to the film’s own gender politics) as President of the American Economic Association and father of behavioural economics, and international pop star. They are explaining the synthetic CDO, the device that caused so much financial destruction in 2008. Thaler’s monologue highlights the hot hand aspect of the fiasco – the sense that property had been going up for so long, and people had been making so much money from it, that observers thought it would just carry on going. The crash was just a matter of our innate behavioural biases.

We can apply this model elsewhere. In the last episode, we started thinking about non-professional investors. We heard how finance research thinks of them as “noise traders”, a polite way of saying what the Wall Street professionals call “dumb”. Nonprofessional investors buy shares that are going up. Now we know that’s the hot hand fallacy, the representativeness heuristic. They buy shares that have been in the news, or shares of firms when they like the products. This is the availability heuristic. They are predictably irrational in their calculations of profit, refusing to sell shares that are tumbling for fear of crystallising their loss. This is Prospect Theory. People account for things in irrational ways, saying things like – and I heard this or its variants many times – “if you take out all the bad trades I had a great year”. This is mental accounting.

Proof! QED! Nonprofessional investors are noisy, dumb, predictably irrational, and behavioural economics has the answer to everything.

Well okay, up to a point. Of course, people do overvalue and undervalue and treat fines as fees and do all the other things that economists say they do, but I can’t be alone in feeling that these explanations are a little, well, thin. At the heart of the behavioural perspective lies the model of the individual agent choosing between outcomes, just getting the sums a little bit skewed. Behavioural economics has been so successful because it is the kind of radicalism that allows you to leave the underlying assumption unchanged, the individual decision-maker, the brain in a vat. I do not think that is really how we choose, certainly not in financial markets.

We are embodied, for a start, and we are embedded in webs of social relationship. This embeddedness has been a persistent theme throughout the podcast as we have discussed how markets have evolved over time, their path shaped by friendships and alliances. The sociological theory of embeddedness emerged in 1973, at roughly the same time as behavioural economics. It too was a challenge to the orthodoxy of the instrumental economic agent, but from a sociological perspective. Mark Granovetter, whose article kicked it all off, suggested that information flows through social ties. He argued that people would prefer to buy from people that they knew and trusted, and would pay more for the privilege of doing so.[4]

As with behavioural economics, a whole field of literature emerged demonstrating that this was the case. To give you an example, one famous (if dated) study showed how the garment industry in New York subsisted on network relationships, with firms offering each other generous credit terms and even loans. The author, Brian Uzzi, suggested that firms embedded in these tight networks had better survival chances than those keeping rivals at arm’s length.[5] In purely economic terms, these findings don’t seem to make sense. We would expect instrumentally rational economic agents to always pay as little or charge as much as possible and to be glad when their rivals went out of business. If you look carefully, however, you will notice that the model of decision remains broadly unchanged: economic agents still choose the optimum outcome but merely recognise the value of social relationships, in terms of better information, collective insurance, a critical mass of providers in a geographical area, or whatever it may be. Social bonds reduce uncertainty, the great enemy of economic decision-making. Like behavioural economics, the embeddedness thesis is a challenge that doesn’t tear the building down around it; it’s the kind of in-house radicalism that goes well with ambitious young researchers looking to make a mark but not alienate the tenure committee. The fact that one can swiftly reduce the notion of embeddedness to the mathematical modelling of network structures can only help here, radical but still demonstrably rigorous quantitative social science.

The concept of embeddedness can help us understand some of the things that nonprofessional investors do. If social relationships provide better information and reduce uncertainty then maybe it does make sense to invest in the firm that you work for, or the corporation in the nearby town that employs some of your friends. Perhaps you can compensate for a lack of diversification with an insider’s sense of how things are coming along. But, as critical sociologists have pointed out, networks are sparse social structures. Networks may show who knows who, but not how they know them. Power relationships, differences of capital, gender and race, all the structural inequalities that are reproduced through networks are rendered invisible by this form of analysis.[6]

We are still circling the point, I think. Our picture of these non-professional investors may be getting more nuanced but there is still a void at its centre. How do people choose? Bearing in mind that non-professionals have not, as de Bondt complained, managed to infer the basic principles of portfolio management from their mediocre performance, what sort of tools do they use to navigate the markets?

Zooming out to a more macro perspective it seems to me that both behavioural economics and theories of economic embeddedness are asking the wrong question. It is more interesting to ask how people manage to be rational in the market at all, even if they don’t quite carry it off. Commentators may complain about the irrational greed and fear that fuelled the credit crisis, the hot hand backing up the synthetic CDO, when the more extraordinary aspect of the disaster was that one could buy financial instruments that reflected, and I’m being precise here, the future revenue streams of wagers on the future revenue streams of wagers on the repayment of mortgages on houses half built in another part of the globe. Extraordinary, but not in a good way! The economic explanation just does not cut it. It is as if, in discussion of the collapse of a series of bets on a baseball game on Mars, Richard Thaler were to tell us that people just got carried away because the green aliens had been doing so well, up to now.

Cast your mind back to our discussion of facts  in episode nine. We saw how facts are made – the clue is in the name – carefully built up through processes of measurement and theorisation, held together in what the sociologist Bruno Latour has called network relations. As Latour has endlessly pointed out, saying that facts are made doesn’t make them any less true, and certainly doesn’t mean that there’s no such thing as reality. It does mean, however, that scientific activity of any kind is dependent upon previous advances in techniques buried in the everyday equipment of the laboratory. Every standard, everyday machine unnoticed in the lab itself contains an entire history of laboratory work and technological advances folded into its programs and circuitry. One simply couldn’t do science if one had to start afresh every day.

The construction of decision and fact are tied together. When we take a decision we do so in conjunction with the material artefacts that surround us. We use these as cognitive prostheses to navigate contemporary life. I wrote a book about this, a few years ago. It was before the whole smart phone app thing had really kicked off, but even then it was clear that we couldn’t get by in the world without the props-for-thinking that came through our screens and web browsers. I was interested in the moral consequences of our construction as cyborg-economic agents, and if you’re interested the book was called I Spend Therefore I Am, republished as A Richer Life. I worried about education, healthcare and love, but let’s concentrate now on weightier matters, such as thinking in financial markets.

Actors don’t drift around markets like disembodied brains in vats. They are enmeshed in social relationships and they use material and technological devices. Processes of observation and decision-making, of seeing and of doing, are shared across these networks. The trader sits at her screens, scanning numbers that have already been parsed and processed by numerous socio-technical systems. She will run additional calculations, send messages, have conversations with colleagues and counterparties. She will buy and sell. Where does the decision-making begin and where does it end? If we claim it is all in the human agent we are performing what the quantum physicist and philosopher Karen Barad calls an ‘agential cut’, artificially slicing between the human and the material because it suits us to give an account of the world in these terms. We could simply say that the decision is performed across this heterogeneous socio-technical assemblage, which we might call, if we were feeling fancy, an ‘agencement’.[7]

Let’s take an example. We hear a great deal about hedge funds. They have done this, or that, betted against the pound, raided our pensions, or funded a political party to achieve certain nefarious aims. The language we use gives it away; the hedge fund is a thing, a composite, a single market agent. It is an agencement, a socio-technical assemblage. A fascinating study by Ian Hardie and Donald MacKenzie treats the hedge fund as exactly that.[8] These piratical, globally domineering organizations turn out to be rather small. The one Hardie and MacKenzie examine has just five employees, including the “sometime intern”. They sit around a large, central desk occupying a trading room in some small, non-descript offices in a desirable part of central London – hedge funds prefer Mayfair and St James’s to the City. The sociologists spent a week in the trading room watching what was going on and reported that much of the day was spent in complete silence: the whirring of fans, or the tapping of keyboards broken only by the occasional cryptic exchange about the valuation of bonds or a telephone call to place an order, several million here, several million there. The room is an epicentre of information gathering, with the three trading partners’ specialised knowledge paired with bespoke calculators, often built in that room, making sense of the deluge of conversations that pours in through email and newswire. “If human beings had unlimited powers of information processing, calculation and memory,” they write, “a single unaided human could perhaps turn the information flowing into the room into an optimal trading portfolio. Since human capacities are limited, as Herbert Simon emphasised long ago, the necessary tasks are distributed across technical systems and multiple human beings: what goes on in the trading room is indeed distributed cognition.” Hardie and MacKenzie show how conversations between the three partners and their counterparties elsewhere converge on eventual trading strategies, wrapping together the output of their tools and calculators. They quote Ed Hutchins, who coined the term distributed calculation: “work evolves over time as partial solutions to frequently encountered problems are crystallised and saved in the material and conceptual tools of the trade and in the social organisation of the work.” The hedge fund is a computational agencement, combining the social and the technical to manipulate market information.

This hedge fund seems very small, at least in terms of its physical presence and organizational structure. How can it wield financial firepower so substantial that, when hedge funds gather in packs – or perhaps shoals, for they are the financial equivalent of piranha – governments tremble? Like any contemporary knowledge business, the hedge fund can only exist in a network of outsourcing relationships with firms that can offer competitive advantages in their own fields, be that cost-efficient manufacturing or in this case clerical services. It delegates the painstaking business of settlement to Dublin to an organisation that itself employs hundreds of workers in Mumbai double checking trades and smoothing problems while the London market sleeps. The pulldown menus of the trading system, leased from another provider, are the front end of this settlement operation, the visible tip of a computational and administrative iceberg. The fund’s deals are conducted by a “prime broker”, an international investment bank that transfers the money necessary to make a trade on the fund’s behalf. The bank effectively underwrites each trade, and this tiny Mayfair office now enjoys the credit rating of a global investment bank. Hedge funds are themselves allowed to borrow, and when this is coupled with the bank’s creditworthiness the combination is quite formidable. Embeddedness matters here too. Mackenzie has shown how fund managers, embedded in a tight social network, imitate each other leading to a super portfolio with enormous power and occasionally disastrous results. No wonder governments tremble when they face them.[9]

As the hedge fund shows, in a market where information is ubiquitous and overwhelming, calculation is both a problem and an opportunity. It is beyond the capacity of the individual human agent, in purely computational terms, and, in an echo of the efficient market hypothesis, if everyone has all market information, it no longer confers an advantage. Advantages must derive from socio-technical processes of interpretation – from calculation – and this must be better, meaning faster, more accurate, more sophisticated. In another classic study, Daniel Beunza and David Stark explore how traders in a bank’s dealing room try to discover arbitrage opportunities in the extraordinary complexities of market information.[10] Arbitrage is the pursuit of risk-free profit: if you can buy goods from Sarah at one pound and sell them to Sidney for two, in the very same moment and without the risk that the goods might break or be stolen in transit or that Sidney might not want them when you get there, that is an arbitrage. In textbook theory, entrepreneurs earn their profit because arbitrage never exists in the real world. In financial markets, it’s arbitrage that keeps prices the same in New York and London: arbitrage exists purely to prevent itself from existing in real life. Beunza and Stark suggest that arbitrage can be found, if traders are clever enough. By breaking down financial instruments so that individual properties such as the exposure to a particular sector or currency can be isolated, traders might find that property is priced differently in one instrument than in another. That’s an arbitrage. If it sounds complicated in theory, it’s much worse in practice. These arbitrageurs are highly educated, users of complex tools and theory; but they depend also on social fluidity built into the space of the office. Unlike the staid and hierarchical spatial arrangements of corporations, Beunza and Stark find the physical layout of the trading room organised to maximise social fluidity, interaction, and the transfer and overlap of ideas. Individual desks – clusters of traders and equipment specialising in one particular kind of trade and organised around a dominant evaluative principle and associated devices – create differing versions of the market from the same data, and when these overlap opportunities can be identified. It’s the role of the office manager to keep these overlaps happening, which she does by moving things around, giving the back office equal status in the trading room, rotating the positions of individuals. Benuza and Stark see the traders’ terminals as ‘workbenches’, heavy  with instrumentation. Calculation happens on the screens, across the desks, and between the desks: it is distributed throughout the trading room. That’s how professionals see and think in the market.

Non-professionals, on the other hand, are consumers. I need to make an important distinction here, for they are not consumers of investments but consumers of investment services. At the most basic level, this insight explains the way that investment services are sold to them, as exciting, or risky, or complicated. It’s an echo of the narratives that we found Tom Wolfe popularizing about finance in episode ten,  mass produced for the commodity market. You will recall the roar of the trading room he describes, young men baying for money in the bond market in the morning. Researching my doctorate, I watched non-professional investors acting out a noisy, carnival-esque version of Wolfe’s market in investment shows, all crowds and screens and exciting investment tech.

What exactly do they consume, these non-professional investors? Everything, the whole market. Again, remember how the sociologist Karin Knorr-Cetina characterizes the market – everything, how loudly he’s shouting, what the central bank is doing, what the president of Malaysia is saying.[11] The market is experienced by professionals as an extraordinary barrage of information, which they wrestle into profitable submission with their workbenches and algorithms. Non-professionals buy a commodified, simplified version of this world. It comes with everything: its own rules and understandings of market function, information sources and the requisite tools for making sense of these. Non-professional investors haven’t been to finance school and don’t know how markets ‘should’ be understood. Instead, they choose the method that feels right to them. Choosing investments is as much as anything a choice of what kind of investor to be – which of many competing investment service packages to adopt – and that is a consumer choice. We all know how to be consumers. Once entangled in a particular kind of investment practice, individuals distribute calculation across the agencement organized by the investment service provider. Their choices spread across a calculative network within which everything hangs together, reasonably and rationally, even if it sometimes looks bizarre from the outside.

A couple of examples will help here. Some investors specialize in the shares of smaller companies, or ‘growth stocks’. This is presumably an ironic name, as many growth stocks would do anything rather than grow. These share are often cheap, and are also known as ‘penny shares’ – the great advantage of a penny share is that it only has to jump to twopence, and you have doubled your money. There is a long tradition of snake oil here. I’m not sure what the inflation-adjusted equivalent is, but the principle is the same. In thin (illiquid) markets, small company shares can move around a great deal, netting their owners valuable paper profits, profits that disappear as soon as the owner tries to cash them in. Most small company investors are smarter than this. They are heirs to another investing tradition, one that can be traced back at least to the 1940s, when the investment guru Benjamin Graham published his book the Intelligent Investor. Graham argued that investors should pursue value, buying stocks when the market price of the shares is less than the parcel of assets each share represents.

These days Graham’s approach is more problematic, because asset values can contain all sorts of intangible capitalised goodwill – branding and so forth – but Warren Buffett has shown what this method can do when it works well. Growth company investors, however, do not look for value that has already shown up on the balance sheet; their endeavour is to find unrecognised future possibility. They believe that the costs of researching growth stocks are such that the “big boys” – whoever they may be – are unable to spot opportunities, but the nimble individual can. It is all about rolling up your sleeves and working hard, getting to know the companies you are investing in. For the financial economist risk management is a matter of portfolio construction. Here, managing risk becomes a matter of diligence and self-discipline. This discourse, this narrative account of how the market works and how we should behave in it is embedded in the tools and devices that these growth company investors use to navigate the market – the tip sheet that proclaims its delight in getting into the opportunity ahead of the big boys, or the pundit who explains that there is value to be found if you are prepared to roll your sleeves up. You can hear it widely:

[finance pundit]

It is framed in an antagonistic relationship with the big guys. One investor described his practice as a way of “outsmarting the large brokers, finding good opportunities that are likely to do really, really well but nobody knows about them, because nobody investigates them.” And, he says, “It’s really satisfying”. Or, as one pundit says ‘I love banking big stock market gains – especially if it’s on the blindside of other investors. Seven years ago I quit my high-flying career in the Square Mile to join a newsletter called…’ There is money to be made, and the investors I interviewed were hoping for 30 percent annual returns, all at the expense of these big guys; but not entirely, because the whole practice depends on the possibility that sooner or later a big guy will spot the value as well, and the stock will be teleported to its rightful price, taking the plucky investor with it. It is a kind of delayed efficient market hypothesis – the market will be efficient but only after I have got there first.[12]

Can you see what is going on here? The investor, lacking a formal education in finance, adopts – buys into – a particular market identity. With that comes an understanding of the way the market works, and a set of tools to negotiate the marketplace in pursuit of profits.

These investors like numbers, but simple ones, so company financials are rendered down to single figure indicators like the PEG, popularised by investment guru Jim Slater, and easy to understand: less than one means buy. Slater’s catchphrase was elephants can’t jump, and I must have heard that in a dozen different formulations. Investors would tell me that small companies are a great place to make money, or would be if they could at least get their formula right.

Another popular kind of investing practice is that of charting, or technical analysis. This too claims a rich investing heritage, dating right back to the arrival of the tickertape and linear time in the markets. In essence, the practice aims to predict future prices from the pattern of previous ones. From the point of view of economic theory, this is madness. The main factor affecting stock prices is news, and news is by its very nature unpredictable. It is news! Think COVID-19 and red ink – the global rout of shares by virus that didn’t then exist was impossible to predict just a few weeks ago. For the behavioural economist, there is a little more sense in the method. If we know that people herd, and that they are irrational and over-emotional, we may expect prices to overreact, to have some momentum, as the jargon goes. So it makes sense to chase the trend, and research shows there are small profits to be made by doing so.[13] Although this is treacherous, and I read that nonprofessional investors have been prevented from making excessive bets on the falling market, lest they be wiped out by the smallest “dead cat bounce”.

Chasing trends does not really capture the chartist’s endeavour. He (always!) has signed up to a view of the market predicated upon some kind of underlying order. The noisy mass of random prices is nothing less than a code that can be deciphered using Fibonacci numbers or Elliott waves. Through elaborate retrospective testing he seeks to discover the perfect pattern of indicators, tests like long term moving averages crossing short term moving averages, for example, or a plotted cloud of stock prices shifting from a supporting position underneath a share’s graph to a position above, weighing it down. This is the holy Grail of charting – to be able to fit a curve so perfectly to historical data that it will be able to predict the future. The only problem, as social scientists know, is a methodological one. The more precisely a curve fits historical data, the less its predictive power. Oh dear.

And even this does not really capture the chartist experience, because the actual practice of being chartist involves paying for some expensive software, configuring it on your PC and leaving it running overnight. Just like those tip sheets the computer takes away the burden of the difficult computational problem, sifting through the market to find profitable investment opportunities. It is about what kind of consumer you are. Does this advertisement appeal to you?

[charting advert]

Thanks Rebecca. That advert really needs to be seen for its full effect, but let me assure you Rebecca is very beautiful and is wearing a very low-cut dress. It is all here, the secret knowledge made simple, the Wall Street bad guys, the fancy jargon and the actually quite easy investment strategies. Yes, charting is really for guys that like messing about with computers and then explaining what they are doing at great length. Here’s Dave, explaining the same trading tactic as Rebecca, but with different emphasis and this time, a ratty beige pullover.

[charting explanation]

Let me also assure you that Dave’s video is not improved by visual, though he has had half a million views on youtube, which is a lot better than I have done. Chartists like to explain things:

“Elliott’, one told me, ‘is a wave structure, a simple wave structure which is basically a series of impulse waves followed by a series of retracement waves, and the impulse is broken into a series of five simple waves upwards, and then you have two retracement waves, and then a series of ‘a’, ‘b’ and ‘c’ waves…a series of five simple waves up followed by three simple waves down. And when you see a movement such as the share price or a commodity price in the stock market you’ll very often see the series of five smaller impulse waves up followed by two retracement waves, an ‘a’, a ‘b’ and a ‘c’…” But at the end of the day all one does is pay some money, and run some software. One click and it’s done.

That’s my point. Nonprofessional investors may sound crazy, but they are not really, because they are not just investors, they are consumers as well. They consume an entire market ontology – a vision of how the markets actually are – linked to an account of how one should behave in them, which is linked to or inscribed into the devices they buy to distribute their calculation across the market place. We all know how to consume, and as consumers we buy things that reflect our preferences and enact how we understand ourselves, the plucky underdog or the tech savvy market savant with a soft spot for Rebecca and her little black dress.

One could be quite cynical about investment service companies here and their role in promoting such a variety of investment practices. Many of which can only be described as bad for the recipients’ financial health, and sometimes their physical health too, for investing is a lonely and stressful business. Alex Preda, who we have met before, videoed nonprofessional day traders at work and found them chatting to their screens as they re-narrate the combat of market action – give me a break buddy, and that kind of thing. This is something they share with their professional counterparts, the need to work the numbers back into bodies, stories and narratives – to make sense of the vast, lonely thing that is the contemporary financial market…[14]

But seeing as saving the world has been cast as a consumer problem – recycling and buying sustainably, cutting down meat and that sort of thing – perhaps we should start consider the reworking of finance as a consumer project as well. When we get round to assembling our new, fit for purpose stock exchange I am almost certain it will not fit with the criteria of rationality circulating in financial econometrics, precisely because those criteria have done so much to contribute to finance as it is today. Narratives around sustainable finance, or impactful investing may help to deal with some of the problems that I have been highlighting from the outset, and nonprofessional investors will be able to participate on their own terms, as consumers, and reasonable, rational people. Not economic men or women, just people.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe. Thank you for listening. Join me next time, when we’ll get back to our story, see how the noughties commodity boom powered stock-markets and learn just how hard it is digging things out of the ground.

I’m adding a postscript. In the two weeks since I wrote this episode the coronavirus has continued to spread and country after country has been forced into lockdown. The markets have fallen and fallen. Surely this must be irrational, a global panic? Or perhaps a rational assessment of the threat of global recession? It’s neither. The model of cognition still holds. We are witnessing a massive, collective endeavour of figuring out stretched across conversations, tools and trading algorithms. The latter are working especially hard, selling. The fact that markets keep having to be switched off, with circuit breakers cutting in to stop precipitous falls, shows just how much calculation has been delegated to those algorithms. These aren’t panicking at all, simply doing what they have been programmed to do. But I do think, more than anything, this is a project of re-embodying and re-storying the nature and future of finance. What we can see at the moment is a future of closed borders and sick bodies, a dystopian, panicked imagining, a place of pure uncertainty and unknown. There’s an element of the availability heuristic here, of course, but hey, it doesn’t seem so unlikely at the moment. Sell! Sell!

[1] Gerd Gigerenzer and Peter M Todd, “Fast and Frugal Heuristics: The Adaptive Toolbox,” in Simple Heuristics That Make Us Smart, ed. Gerd Gigerenzer and Peter M Todd (Oxford: Oxford University Press, 1999).

[2] Siren, from https://freesound.org/people/Nahlin83/sounds/220424/

[3] Amos Tversky and Daniel Kahneman, “Judgement under Uncertainty,” Science 185 (1974).

[4] M Granovetter, “The Strength of Weak Ties,” American Journal of Sociology 78, no. 6 (1973); ———, “Economic Action and Social Structure: The Problem of Embeddedness,” American Journal of Sociology 91, no. 3 (1985).

[5] Brian Uzzi, “The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect,” American Sociological Review 61, no. 4 (1996).

[6] GR Krippner, “The Elusive Market: Embeddedness and the Paradigm of Economic Sociology,” Theory and Society 30, no. 6 (2001).

[7] Michel Callon and Fabian Muniesa, “Peripheral Vision: Economic Markets as Calculative Collective Devices,” Organization Studies 26, no. 8 (2005).

[8] Iain Hardie and D MacKenzie, “Assembling an Economic Actor: The Agencement of a Hedge Fund,” The Sociological Review 55, no. 1 (2007). Quotations below from p66-67.

[9] Donald MacKenzie, “How a Superportfolio Emerges: Long Term Capital Management and the Sociology of Arbitrage,” in The Sociology of Financial Markets, ed. Karin Knorr Cetina and Alex Preda (Oxford: Oxford University Press, 2004).

[10] Daniel Beunza and David Stark, “Tools of the Trade: The Socio-Technology of Arbitrage in a Wall Street Trading Room,” Industrial and Corporate Change 13, no. 2 (2004).

[11] Karin Knorr Cetina and Urs Bruegger, “Global Microstructures: The Virtual Societies of Financial Markets,” American Journal of Sociology 107, no. 4 (2002).

[12] See my paper Philip Roscoe, “‘Elephants Can’t Gallop’: Performativity, Knowledge and Power in the Market for Lay-Investing,” Journal of Marketing Management, no. 1-2 (2015).

[13] N Jegadeesh and S Titman, “Profitability of Momentum Strategies,” Journal of Finance 56 (2001).

[14] Alex Preda, “Brief Encounters: Calculation and the Interaction Order of Anonymous Electronic Markets,” Accounting, Organizations, and Society 34 (2009). See also Caitlin Zaloom, “Ambiguous Numbers: Trading Technologies and Interpretation in Financial Markets,” American Ethnologist 30, no. 2 (2003).

Episode 13. Other people’s money

This episode returns to 1999, the year of dotcom mania to explore how rivers of cash from private investors – other people’s money – changed the shape of finance forever. OPM paid for new infrastructure, made finance mainstream in the media, and helped establish a stock exchange for small company stocks. Fortunes were made – even the Queen got involved – but not by these everyman punters. We start thinking about why these ‘other people’ invest at all, especially as they are so bad at it.


The summer of 1999 found me, aged 25, an inexperienced young reporter at the newly founded Shares Magazine. We occupied a scruffy, overheated office in Southwark, just opposite where the heroes hung out in Guy Richie’s classic film, Lock Stock, just round the corner form where Colin Firth and Hugh Grant crashed through a restaurant window, battling over Bridget Jones. Borough Market, around the other corner, still sold fruit and vegetables to London’s cooks and costermongers. Yes, it was a very long time ago.

We lived then – as now – in interesting times. In 1999 the world really started to get excited about the internet. Stock markets, booming since the mid-1990s, lost all semblance of control. We looked forward to the internet freeing us all and at the same time making us all rich. Ha! See how that one turned out. But the money pouring into these internet stocks changed the way the world of finance worked for good, and that’s the subject of this episode. For anyone that looked, there were also plenty of signs that we would never manage to democratize the profits of the internet and use it to rebuild our institutions. We were, as always, just too mean and greedy. Too quick to dine out on other people’s money, or OPM as the spivvier boys called it. Of course, I never looked. I had parachuted straight into this world of paid-for lunches and the world jostling for my attention or hanging on my every pronouncement. A fellow scribe had landed the precious small companies correspondent job at a prestigious news outlet. In this, his first job after university, he would find himself speaking to one chief executive on one line, with a stream of callers trying to get him on another, his mobile ringing, thrown in a drawer. On one occasion he tipped a small firm and saw the shares rise 50%, adding £11m to its market cap. ‘At the age of 24’, he said, ‘that was a big deal’. Imposter syndrome? We were so far off the pace that we didn’t even know we were.

Once or twice, I did begin to feel that everything was not quite as it should have been. On one occasion I received a telephone call from a television investment channel, asking me to go to the studio and offer some share tips. I didn’t think that any of the shares on my beat were worth tipping that week, so I picked up the magazine and looked up the house recommendations, took them down to the studio and sang their virtues on air.

That should have been that, but a couple of days later, working late, the phone on my desk rang. The caller carefully explained that he had lost £10,000 on one of the stocks I had tipped. He wondered whether I knew of anything that had gone wrong with the stock, anything that might have moved the market so rapidly against him. I didn’t, and the newswires showed nothing. Had there been, the caller wondered, any heavy selling that I was aware of? There was none, as far as I knew, I replied. But, he said, someone must have been selling or the price would not have moved. A weighty silence, and the caller rang off. I told myself that anyone who staked ten grand, or rather, staked enough to lose ten grand on the recommendations of someone so obviously green behind the ears as me, got what was coming to them. Still a sense of disquiet, and perhaps even a gnawing sense of responsibility, persisted. I checked out a few more of the house tips, particularly those associated with more savvy, occasional contributors. All too often there was a clear pattern of the stock price ticking up nicely before the magazine was published, then coming sharply down on heavy selling afterwards. My caller had got tangled up in the selling. It could easily have been coincidence, as short-term investors bought on the tip and then took their profits. But then, it might not. Such practices weren’t uncommon, as it turned out: in 2005 a group of journalists from the Daily Mirror were convicted of buying stock ahead of a tip in a national newspaper.[1]

This was not the only time I was an unwitting accomplice to some petty market dishonesty. More than once I cheerfully repeated the stories I had been fed by some promoter or chief executive, only to discover that they had been less than scrupulous in their account. That my beat covered builders and mining prospectors probably did not help. As I learned the ropes I began to discern the most egregious misdirections, and when the phone rang now it was more likely to be an executive outraged that his firm had been portrayed in a bad light.

‘Your graph’, one said, ‘makes it look as if my share price is going down.’

‘It is going down,’ I replied, settling myself down for a long conversation.

‘But it was going up before.’

‘Yes, but for the last eighteen months it has been going down.’

‘So what will my investors think when they see this graph?’

‘That your shares are going down?’


The thought processes of investors – and note the possessive ‘my’ – were clearly an asset to be cultivated as carefully as the millions tonnes of gold that might, or might not, have been lurking under his exploration permits. More carefully, in fact, as the contributions of investors made a much more meaningful contribution to the chief executive’s salary than all that hypothetical, not-yet-quite-discovered, underground lucre. Still, I felt an obligation to our readers, for it was they who paid my wages. I took refuge in the old adage that you can’t please everyone all the time. Even if they did buy you lunch.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. In the second part of this podcast series, I’ll be looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

My inability to spot what was new in this bizarre, crazy, dotcom world, where 24 year olds could move markets and people followed them with their life savings wasn’t surprising, because everything was new, and everything was crazy, and everyone there was playing the same game, pretending that this was just everyday, and that every day for ever would be just like this: firms that had existed for weeks, with no products or sales, worth millions; two bit corporate finance outfits ranked more highly than industrial concerns. One mid-size broking and advisory firm, Durlacher – a newish outfit, though one that carried an esteemed City name – saw its book value climb enough for it to qualify for the FTSE100. Tragically, it never actually joined the FTSE. By the time the quarterly reshuffle came around, the bottom had fallen out of the market and its book wasn’t worth quite as much as had previously been thought. Durlacher later suffered the ultimate stock market indignity. It became a stock market shell, an empty carcass whose only value comes from the fact that it maintains a quotation on the exchange.  Individuals also found themselves in possession of substantial paper fortunes: ‘In January 2000,’ one small time financier told me, ‘one of my colleagues came to me and said, “I’ve just worked out what your options are worth”…In January 2000, my personal options, according to my colleague, were worth substantial double figures of millions. I’m glad I didn’t go out and spend it…’

Everything was new: the materials, the companies, the investors too. The mechanisms of investing, the online brokerages, the media circus of finance of which I was a very small part, was all new and all paid for by a new kind of investor. Before the Big Bang reforms it wasn’t possible for an outsider to deal even indirectly in the stock market. You needed to find a broker, who would often insist on providing advisory services – in other words taking control of your money and charging you hefty fees for looking after it. This required you to be an affluent, even wealthy individual. But the Big Bang reforms, which we covered in episode six, broke up the cartels and made it possible for brokers to offer services they called “execution only”, communicating with customers by telephone and post and charging small percentages to buy and sell shares as the clients wished. These brokers could make a living due to the explosion in popular ownership of shares.

You may remember the tell Sid campaign that accompanied Margaret Thatcher’s massive programme of privatisation. In a new social contract that emphasised self-help and entrepreneurship over collective provision for things like ill health and old age, share ownership became a respectable pursuit for the everyman Sid. It was part of the essential activity of shoring up one’s financial future. Besides, all Sid’s shares, flogged to him at a massive discount, had rocketed in value. Now he needed a mechanism to sell them, or even better to buy some more looking forward to profits on those as well. All of this, you may remember, came to a sticky end in 1987.

By 1989, many Sids must have wished they had never been told. Under this new social contract, the flourishing of the stock market was necessarily linked to that of the polity. What was good for Sid was good for the market and vice versa. In the early 1990s, the US Federal reserve began to lower interest rates aggressively and pour money into the economy in order to boost the stock markets. This tactic was employed every time the markets stuttered and became known as the ‘Greenspan Put’.[2] With interest rates lower than inflation anyone so foolish as to try to save found themselves losing money. Far better to borrow and invest! Cash flowed into property and the financial markets. The discount brokers sat up and took note. They were quick, too, to recognize the potential of the internet for their own business organization. In a competitive sector with wafer thin margins it offered the ability to cut costs to the bone, simultaneously reaching a broad public. Economies of scale allowed American broking giants to expand quickly into the UK and elsewhere. These firms were soon selling more than stock: brokers swiftly realised that they could offer a crude simulacra of the marketplace as experienced by professional traders, turning the whole business of private investing into a sophisticated leisure pursuit for the tech savvy investor.

It was the same for financial media. Before the 1980s British financial journalism had been preserve of Financial Times – which published a daily list of closing prices and some company news – and a few specialist publications. It was much the same elsewhere. Information flowed through personal contacts and private channels and by the time it got into the papers it was – quite literally – yesterday’s news. Growing private ownership of shares led to an explosion of publications and broadcast media. Shares Magazine was just one such example, a brand-new, nationwide weekly publication launched to an audience that hadn’t existed a few years previously and for a short while enormously successful. Market news became an accepted component of news broadcasting, and business channels thrived. The celebrity financial pundit arrived on our television screens. My boss at Shares, Ross Greenwood, was one such. His fame was nothing compared to that of Maria Bartiromo, the news anchor who, in a predictably gendered put down of a clever and dynamic journalist, became known as CNBC’s ‘Money Honey’. Though I feel less sympathetic knowing that Bartiromo now works for Fox News and has trademarked ‘Money Honey’ for future ventures. When life gives you lemons, I suppose. The whole thing became what critical geographer Nigel Thrift has termed a self-reinforcing cultural circuit, paid for by the torrents of private investor money that flooded through the brokers’ portals.[3]

Even the exchanges that traded these stocks were new. There was the London Stock Exchange’s AIM, founded in 1995 – which we dealt with in the last episode – and its upstart rival OFEX, operated by veteran small company market-maker John Jenkins through his firm JP Jenkins and Son. You may remember from episode 8 how a series of technological overflows spilled out from the LSE and led to the creation of this exchange. To begin with it wasn’t even an exchange, just a badge for the marking making activities of Jenkins’ firm, specialising in small stocks, and firms too unusual to list on the new AIM market. Initially, perhaps because it was just a trading facility OFEX’s entry requirements were light and application was straightforward: a Stock Exchange member firm, or a member of a recognised professional body such as a qualified accountant, could apply on a company’s behalf. It needed to present an application form, a questionnaire, and some directors’ declarations, together with a non-refundable application fee of £250 plus VAT. Jenkins made its money through trading, and OFEX was just a necessary mechanism to ensure there was something to trade. There were no great plans, no delusions of grandeur, as John Jenkins put it.

Entrepreneurial corporate financiers, however, soon saw an opportunity. They began to use OFEX as a place to raise funds for new businesses. The first public offer of securities on OFEX was Syence Skin Care, which raised £250,000. Jenkins reportedly told John Bridges, the advisor responsible, that he ‘scared the hell’ out of OFEX’s management, who had never envisaged that a company would raise money on the market.

It wasn’t even clear that this was legal, and OFEX was not really ready for such traffic. Unpleasant scandals rocked the young market. The most infamous was Skynet, a firm which offered satellite-operated tracking devices for cars. Having listed at 27p, the stock climbed to 275p, valuing the company – despite an absence of sales, or even a viable product – at £30m. Following outrage from investors, board resignations, demands from the tax office and the landlord, and finally an auditor’s declaration of insolvency, the shares were suspended in January 1998 at 4p. The reputational damage of Skynet’s demise was compounded by a rescue plan from the infamous Tom Wilmot, proprietor of Harvard Securities and the salmon pink Bentley.

In response, OFEX began to evolve the structure and organization that befitted a capital market. JP Jenkins moved to tighten standards and began to promote the market in a more systematic way. It supplied price and company data to resellers such as Bloomberg and Reuters, launching itself into the cultural circuit of late nineties finance capitalism. The Financial Times and the London Evening Standard carried closing prices of some of the more important shares. By 1999 a redeveloped website allowed private investors to access content that had previously been distributed via Newstrack, such as company fundamentals and announcements. In what OFEX described as ‘a turning point in the battle to get up-to-the-minute OFEX information freely accessible’ the site provided data in real-time in a format accessible to private investors. Today’s data-driven age might incline us to lose sight of the fact that this was a big deal – everyday punters could, in theory, participate in the market on the same terms as professional investors. The firm established a selection panel to screen firms that wished to join the market and emphasised compliance structures to the point of seeming ‘paranoid’. In 1998 OFEX changed from being a badge for a trading operation to a self-standing market, its business model based on charging listing fees to companies and providing market information. JP Jenkins remained sole market maker, a license to print money in a heady bull market. As the millennium drew to a close, its traders could not deal fast enough. A story circulated that they had put a bucket in the corner of the dealing room so they did not have to make even those short trips to the lavatory; the more prosaic truth was that they wedged the fire doors open so that essential trips could be done as swiftly as possible. By November 1999, John Jenkins, by now chairman of a substantial group of companies, found himself back answering the phone in the trading room. They were in clover.

At the centre of all this madness was the dotcom stock, and a good old-fashioned speculative boom. The seventeenth century had one in tulip bulbs, and the nineteenth one in railway shares. There was, after the war, a short lived boom and bust in the shares of dog tracks. By 1999, the investing public was in a frenzy for the next bit of dotcom excitement, as the Internet promised to radically reshape the way we did business. It did of course, like the railways; and like the railways, the real gains were captured elsewhere, by Google, Facebook and Amazon, not by the punters that funded the infrastructure. At the time, all that mattered was that shares kept going up and new issues on OFEX became seen as a sure-fire way of making money. They offered retail investors a chance to join the dotcom party at the beginning, as opposed to buying already inflated stock in the secondary market. Market euphoria fired up the ambitions of the meekest firms. One financier said, ‘I knew people who walked into financial advisers and merchant banks and so forth with a business plan and said, “We’d like a million quid please to see if we can prove the point,” only to discover that two days later they had a fully blown prospectus and they were raising at least 25 million.’

OFEX became a reliable venue for raising money, often for very speculative ventures: a firm called printpotato.com, set to revolutionize t-shirt printing via the internet, or if my memory serves me well, balls.com, your one stop shop online for anything ball related. The domain name is now an enthusiast’s blog on sports balls. The crucial device for fundraising was the prospectus, a 60 page A4 booklet jammed full of legal boilerplate. The financiers assembling them didn’t have a legal protocol to follow so they repurposed the offer documents of more senior exchanges. Investors could send off for a prospectus and digest these legal complexities before putting up their money. On the back page, a tear-off slip invited anyone inclined to send in a cheque. ‘Occasionally, said one advisor, you would get somebody calling up saying,

“Oh I have just sent in a £1,000 cheque for whatever it was, but when are you going to cash the cheque?”

“I will probably go to the bank later today,” he would reply.

“Oh I will not get paid until the end of the month.”’

How did these oh so sophisticated punters know about these exciting new offers? That’s where we, the media circus, came in. The crucial interface between the company raising multi-millions to fill a warehouse with tennis balls and the investors who hoped to be a part of this brave new world was twofold.

It comprised us journalists and the public relations firms. These latter operated a simple formula, described by one as ‘If I take you [journalists] out and get you pissed a lot you’ll write about my company’. As recent graduates, we were ideal candidates: we may not have known much about stock analysis, but we were bang up to date on the uses of free booze. Yet there was more nuance to this strategy than first appeared. The rule was to keep the journalists at lunch until late in the afternoon so they had no time to do any research, and cushioned by a warm cloud of foie gras, would write the story as it had been passed to them.  There was a fine line between good-natured inebriation and incapacity, so it was the task of the host to send the journalist back to the office while they could still write. 4.30pm was widely held to be the ideal breaking-up time; I never spent evenings foggy eyed at the screen rewording press releases, but I knew many who did. Ahem. Regional reporters would be entertained at ‘ARCE lunches’ – that’s Association of Regional City Editors – each given topped-and-tailed press releases with a regional anecdote or focus, and the issues would receive coverage all over the UK. The cost of all this hospitality fell upon the future investors, of course, although I remember one story about a firm that went bust at the mere thought of the restaurant bill, leaving the PR man to heroically pick up the damage and the tab. This same man, a ruby faced, genial version of Monty Python’s Mr Creosote, passed away just a couple of years ago in his residence in the south of France, until his late eighties a living reprimand to all things health and diet-related. Still, the formula worked. The extraordinary demand for stock threatened to overwhelm the small finance firms: ‘There was one particular day,’ one promotor told me, ‘when I personally fielded over 300 phone calls. My receptionist logged 275 phone calls that she couldn’t put through to me, because I was on the phone…they were almost always all the same, “Did I get a piece in your last float, can you put me down for the next one?”…On a Sunday, phones rang all day long, people in the hope of getting somebody on the line that they could give money to.’

Many advisory firms made a great deal of money in a short space of time. It had become customary to issue warrants (a form of stock option that allowed the holder to purchase stock for a nominal price) as delayed payment for advisory services, and firms found themselves suddenly sitting on enormous paper gains. Like independent record labels, small advisory firms only really needed a single success to enjoy a comfortable life hereafter. Durlacher, playing the same game with weightier pieces, ended up in the FTSE100.

These deals could be complex. Offer rules were based upon caveat emptor – buyer beware – so however imaginative the offer structure might be it need only be displayed in the prospectus and buyers were expected to discriminate accordingly. It was always other people’s money: it paid for the fees, it paid for the lunches, it paid the executives’ salaries until cash ran out. It bumped up the price of shares so promoters could sell them at a profit. Really greedy operators set up deals where they not only raised money for the company but also sold investors shares that they had issued themselves, so called ‘founder shares’. If you issued yourself 10 million shares at a fraction of a pence each (total consideration £5) and sold them on for 10p each alongside the issue of a further hundred million shares at 10p, that was £10 million for the firm – your salary for a while – and £1 million straight in your pocket.

It attracted all sorts. Sixtus, the founder of British venture capital who I so cruelly lampooned in episode four, was up to his ears in dotcom. He helped his brother, a dashing former naval commander, assemble a business proposition from the most tenuous of resources, somehow managed to get a member of the royal family involved as an investor, and floated the whole lot. Sixtus’s tame millionaires put up the first tranche of money and were handsomely rewarded when the public offer came. Shares rocketed and the Queen, for it was she, made just under £1 million on a £50 grand investment.

Of course, not everyone agreed that dotcoms were worth what was claimed. Daniel Beunza and Raghu Garud document a very public spat between two Wall Street analysts.[4] It concerned this strange new company called Amazon. Jonathan Cohen, a well-regarded analyst at Merrill Lynch, argued that Amazon should be valued as a bookseller and forecast $50 a share based on $1 billion of revenue. Henry Blodget, an unknown newcomer at a Canadian bank, called Amazon an ‘Internet company’ – some other kind of thing – and predicted $400 a share. Investors slugged it out until, as the writers put it, ‘the episode finally resolved itself in Blodget’s favour. The stock exceeded the $400 price target in three weeks, and Blodget entered Institutional Investor’s All-Star team.’ There’s a double epitaph here: Blodget became Merrill’s star tech analyst but was completely discredited when regulators discovered that he’d been selling his audience duds. He publicly rated one excite@home as a ‘short-term accumulate’ while telling colleagues that it was ‘such a piece of crap’, for example. He was fined heavily by the regulator and his Wall Street career was over. As far as Amazon was concerned, however, Blodget was right. Amazon was some other kind of thing and its current share price makes his target seem entirely insignificant.

In dotcom London, the role of super-aggressive sell-side tech analyst went to one Dru Edmonstone. When I left that world I thought I had heard the last of him, but in a story calculated to amuse and delight the editors of serious news outlets, Edmonstone – a distant cousin of the Duchess of Cornwall – was, in 2018, found guilty of fraud. He had, inter alia, claimed various welfare payments under the names of his sister, an employee of his father, Sir Archibald Edmonstone, he 83-year-old 7th baronet of Duntreath, and Fight Club’s Tyler Durden, and he had masqueraded as a doctor to sell refreshments to walkers passing through his family’s 6000 acre estate in Scotland. The Sheriff presiding said Edmonstone had “a long history of manipulative behaviour and sociopathic behaviour”, ideal personality traits, one might think, for the dotcom world.[5]

So there we go. Other people’s money attracts all sorts of takers. But what about the other people?

During those frenzied months working at Shares and similar outfits, I developed a fascination with these private investors. Professional finance holds that private investors are dumb,  and academic finance researchers are barely less scathing  although they prefer the term ‘noise traders’. Werner de Bondt, one eminent scholar, laments “the failure of many people to infer basic investment principles from years of experience”, as if one might magically infer portfolio management theory from a few shaky bets on Tesco or Carillion. There are plenty of studies showing the kind of things they do wrong. They trade too often, incurring excessive trading fees. They are overconfident, staking too much on risky firms and then are unwilling to cut their losses, because selling means owning up to failure. They are prone to buying stocks of firms that that have been in the news (and are therefore overpriced), that they work for (an unwise lack of diversification), or firms located near where they live. They follow each other, herding, and follow tips. I ended up writing my doctorate on private investors and the way that they behave; there are a few competing explanations, none of which involve stupidity.

In one sense, investing is just another form of consumption. Advertising and consumption scholars (and, in fact, anyone who has eyes and ears) have known for years that we buy things for fun, because they make us look and feel part of a group or culture, or because we are building ourselves a particular lifestyle and identity. No one is immune: in a consumer society even non-consumption is a kind of identity work. So we should not discount the possibility that investors buy stock because they enjoy doing so, for the same reason that they might have a flutter on the horses, or buy a pair of fancy shoes. The first being excitement, the second being a mode of consumption where one positions oneself as a player in the market. Companies selling investment services cash in on these ideas. You see adverts featuring racing cars, valorising greed, speed and immediacy. Investment firms conjure up new products that mimic the high risk/high return style of trading associated with the professionals. Another marketing strategy casts the investor as a canny, lone investigator, going up against the ranks of the bloated and lazy professional sector. Whatever your demographic positioning, I am sure there is an investment advert just right for you. Brooke Harrington, a sociologist who has written on investment clubs in America, witnessed groups deciding not to buy stock in Harley-Davidson motorcycles and La-Z-Boy, a manufacturer of lounge furniture, because of the cultural connotations of the products they sold..[6]

This consumption is part of a broader picture of investing’s place in the social world, one that is tied to the changes in social contract outlined above. Collective provision has been replaced by individual responsibility, and being an investor is part of the discharge of good citizenship. Harrington’s investment club members offer justifications along these lines, stressing the moral obligation to be in the markets. ‘Where else are we going to put our money? In the mattress?’, said one.[7] Investing is a means of stating one’s place in the world, a narrative performance as well as an economic one. Harrington writes that ‘When individuals buy a stock…they are also buying a story. And in buying the story of the company, they are buying a story about themselves: the great investment decision becomes a core element in the autobiography of the modern American’. In Taiwan, where private investing has become almost ubiquitous in recent years, the activity is shot through with social relationships: people doing each other favours, people using investment to demonstrate their superior situation, investing to gain access to social situations and groups.

With a colleague, I have argued that the economic relations of Taiwanese investing are generative of social relations and not, as is frequently supposed, the reverse.[8] In the UK, I found that investing was linked to stories of self-development. Investors make pilgrimages to fairs and shows that offer a noisy simulacrum of being in the market, although it’s really a market for investment services rather than investments: screens everywhere, lectures, debates, exciting products and risky services. In the case of noise trading, it seems that the noise is the bit that matters…

All this explains why people invest, but it doesn’t get quite to how they do so. I have argued elsewhere that investors are ‘docile bodies’ of neoliberalism, their activities configured to be economically productive for society. That process of configuration is the most interesting thing of all,  and it opens up a fascinating topic for next time: how people see and do in the market.

That’s nearly it for now. We are  starting to find the strands of our analysis converging. There is a story of technology, bringing new money and possibilities into a market that has already been shaped by the move to wires and screens a decade before. There is a political story, the simultaneous reconstruction of social contract to a market dominated model and the provision of conditions germane to activity within that model. The new polity is freighted with its own narratives of responsible and appropriate kinds of social action, while the technology offered dreams of future riches and the possibility that these would be democratised across the many who now participated in the stock market. Of course, it did not work like that. By the spring of 2001 selling had started in earnest. Alas, the law of gravity applies to speculative financial investments as much as it does to apples; the Queen lost almost all of that bonus million, or so the media gleefully reported. Our friends at OFEX found themselves rowing against the tide. The fledgling market gave back most of its profits and found its new infrastructure – a telephone system installed to cope with the volume, for example – coupled with its capital market business structure, an expensive proposition. Then came 9/11 a war in the Middle East, and a difficult couple of years for the industry. But OFEX did not give up yet. It struggled on, in pursuit of its missing ingredient: legitimacy.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe. Thank you for listening. Join me next time, when we’ll find out why people do what they do in the market.


[Cash register sound under creative commons licence https://freesound.org/people/kiddpark/sounds/201159/]

[1] https://www.theguardian.com/media/2005/dec/08/pressandpublishing.mirror1

[2] https://en.wikipedia.org/wiki/Greenspan_put

[3] N Thrift, “Performing Cultures in the New Economy,” Annals of the Association of American Geographers 90, no. 4 (2000).

[4] Daniel Beunza and Raghu Garud, “Calculators, Lemmings or Frame-Makers? The Intermediary Role of Securities Analysts,” The Sociological Review 55, no. 2 (2007).

[5] Camilla’s royal cousin jailed after claiming disability benefit – The Scotsman and Camilla's aristocratic cousin 'claimed housing benefit' | Daily Mail Online

[6] Brooke Harrington, “Capital and Community: Findings from the American Investment Craze of the 1990s,” Economic Sociology, European Electronic Newsletter 8, no. 3 (2007).

[7] ———, Pop Finance: Investment Clubs and the New Investor Popularism (Princeton: Princeton University Press, 2008), 149. The next quotation, 48.

[8] Yu-Hsiang Chen and Philip Roscoe, “Practices and Meanings of Non-Professional Stock-Trading in Taiwan: A Case of Relational Work,” Economy and Society 46, no. 3-4 (2018).

Episode 12. ‘The High Temple of Capitalism’

Some stories incarcerate, others emancipate. This episode explores the founding of the London Stock Exchange’s junior market, AIM. It follows the narrative of UK plc, exploring how it shapes the Exchange’s actions. We hear how the story slowly changes into something different, a vision of the market as the high temple of capitalism. We find out how the market makers and advisors lobbied successfully to maintain their advantages in the market. Despite all this, I suggests that we might find in the AIM story some germ of emancipation: a new way of understanding how a financial market could look.


‘Some stories,’ says philosopher Richard Kearney, ‘congeal and incarcerate, others loosen and emancipate.’[1] But what does what? The task confronting the critically-minded citizen is precisely this, discovering which stories fall into which category; coming to know, as Kearney more colourfully puts it, whether ‘the voice I hear in my tent is that of the love of God or of some monster’. Perhaps we needn’t go that far, but Kearney has a point: stories are powerful and power-filled. They have a life of their own. They break free of their originators and travel, enrolling networks of support through which they might confront and dispatch lesser adversaries. It’s too much of a stretch, perhaps, to claim that stories have agency, but they certainly do things. Just look at the stories circulating in contemporary British politics: narratives of heroism, plucky Britain, a nation defined by a pugnacious smallness, continually punching above its weight. Every time you see someone dressed as Richard the Lionheart, stood outside Parliament and clutching a placard, you recognize the story at play. Does it incarcerate or emancipate? I’ll leave that up to you…

For a professional social scientist, this is just part of the job. Setting out to collect oral histories is setting out to deal with such a problem. As Kearney says, it’s hard to tell, and perhaps it’s best not to try. One cannot hope to provide an absolutely objective history: better to give the voices space to speak, and guide the listener through the result. We must look beyond the surface, catch hints and glimpses. When I investigated the 1995 formation of London’s junior market, AIM, I encountered the same story over and over: how European regulations forced the closure of London’s Unlisted securities market, pointing a knife at the beating heart of UK plc; how a plucky band of campaigners forced the Exchange to the negotiating table and demanded a replacement; how AIM arrived and has been the champion of British business ever since. This story is a fairy tale, as I showed in the last episode. The LSE was provoked by innovations from elsewhere, moving to shut down a rival market that was taking hold in the shelter of its own regulatory umbrella. The received story made no mention of this rival, dismissing its founder as a peripheral player, too small a fry for the big fish to worry about.

Some stories congeal and incarcerate, others loosen and emancipate; a story might provide access and shelter for some, yet slam the door against others. We must be alert not only to the facticity of a story, but also to its consequences.  When I probed further, I found in the accounts given by these men the faint traces of a woman. Named Theresa Wallis, she had been at the centre of things, she had got matters sorted, and then slipped quietly away out of the narrative. I’m sure she won’t mind me saying that she had something I suspect the men didn’t. She had faith: she believed in UK plc, she believed in the story, and that belief allowed her, in the words of one interviewee, ‘to walk through walls’. For Theresa Wallis did manage to start a stock exchange, and her design has become the model for a generation of imitators worldwide.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. In the second part of this podcast series, I’ll be looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

I began the last episode with a bit of nostalgia, looking back to the late 1990s and the wild excitement of the dot-com era in a London that had yet to be gentrified. That was on the way, of course. Financialization, the steady drift of profit-making into the financial sector that took everything else with it, transforming the capital into the steel and glass metropolis we know today, began in the 1980s. For many critics, it hinges on the Big Bang of 1986, when the City’s floodgates were thrown open to global capital flows. But the game certainly wasn’t over all at once, for the 1990s began with a valiant and genuine attempt to use financial markets for their stated purpose: the raising of capital for small and growing businesses. That was the remit of AIM. Like almost everything in this story it worked out in an accidental fashion. AIM created the world I had stepped into, and if we going to understand how that world took shape, we need to step back in time a little and investigate the formation of the market itself. If we want to know how to build a stock exchange, we should look how others have done it already.[2]

Just to remind you, AIM – or The Alternative Investment Market – is the London Stock Exchange’s junior market. Junior means that it is aimed at smaller, younger companies, and that it is easier for firms to get onto. The taxman treats companies listed on AIM as if they were still privately held, conferring certain tax advantages on shareholders. That is a reward, in theory, for risking their money in earlier stage ventures. You will remember from the last episode how a similar market called the USM had operated successfully throughout the 1980s but had been closed when the recession of the early 1990s stripped away demand and the Exchange’s bureaucrats tired of the administrative burden. Remember how a gang of important players within the USM world got together and founded a lobby group to pressure the LSE into establishing a replacement market.

The venerable London Stock Exchange was, by 1993, looking a little bit directionless. Big bang had broken up the trading floor and the LSE’s physical monopoly on the profitable business of market making. The jobbers, specialised traders who had evolved alongside the Exchange over 200 years, were suddenly gone. The LSE had been embarrassed by a huge and expensive IT fiasco, which resulted in the loss of its settlement function and the resignation of its chief executive. It had long operated as a membership organisation, owned by its members – a mutual – but this structure  had become deeply unfashionable and often gave rise to unacceptable conservatism in the Exchange’s rules and management decisions._

Its business proposition was moving from regulation towards the more nebulous provision of exchange services and data sales, but any firm could do this. The LSE was a national institution, but why? What made the LSE special?

Michael Lawrence, the new chief executive, clutched the lifeline that he had been inadvertently thrown by those campaigners touting the interests of UK plc. This was exactly what the Exchange was for: growing Britain as an entrepreneurial nation, not just in London but across the English regions, in Scotland and Northern Ireland! It would be pushing at an open door, for business-folk and policy-makers outside of London had also begun to believe that the financing of entrepreneurial businesses might offer a remedy to the economic collapse that followed the rapid de-industrialisation of the late 1980s. Lawrence saw an opportunity to fill the void left by the closure of regional stock exchange offices in the 1970s and 80s, and reckoned on an nationwide demand. ‘These smaller companies,’ Lawrence would say, ‘these earlier stage companies are not going to be walking about the City of London, you know, they’re going to be in the UK regions.’ There was money in the regions and received wisdom held that local investors preferred local businesses: ‘One of the things I heard and learnt when I first came on with the role,’ says Wallis, ‘was… investors, when it comes to small companies they’d rather invest close to home where they can go and visit the companies and they look them in the eye and all that sort of thing.’ The vision of all this lonely money and all these needy businesses would have set even the most stony hearted of financial middlemen trembling. At the heart of Lawrence’s seven-point plan for the revival of the London Stock Exchange was a proposal to transform the problematic Rule 535 over-the-counter market into a vibrant cash-raising facility for the entrepreneurs of UK plc: a strategic masterpiece dealing with the LSE’s biggest worries in one single movement.

And so began the slow process of talking this new market into being. Lawrence recognized that a new approach to listing would be vital, and that, in the conservative institutional culture of the LSE, this would require an entirely new team. The success of NASDAQ was credited in part to its independence from the New York Stock Exchange – it’s a completely different organisation, of course – but the LSE sought to imitate this independence, and thus NASDAQ’s success, within its own institutional setting. Lockheed – the aeroplane manufacturer – is famous for its ‘Skunk Works’, an autonomous group of engineers given freedom to go and create super-cool new things, notably the Blackbird spy plane.[3]

The model has been trotted out by business school gurus ever since as a successful tactic for developing innovation in big organisations, and Lawrence took a similar approach, though I doubt whether he did so consciously. He put a young and little known executive called Theresa Wallis in charge of a working party with a brief to think about listing in a completely new way. Wallis had already demonstrated her management – and marketing – skills at the Exchange by developing the Eurobond listing activities to match the customer-friendly, turnkey service offered by the Luxembourg Stock Exchange. A pivotal figure in this history, Wallis’ efforts have never been fully recognised, though it is clear she displayed a remarkable energy and competence in making the market happen. She had been instructed to ‘walk through walls,’ said one intervewee, ‘and she did’. Another described her as an ‘incredible leader, a team player, politically aware… phenomenal… it was a blessing to be working with her.’

Wallis was, as I have said, a believer. She was, she says, ‘inspired by the ability to [do] anything that can help the UK economy and can help… helping smaller companies grow, helping the UK economy.’ She was generous in her retelling of the market’s foundation, emphasising how much support the working group received from the rest of the Exchange; she remembers colleagues with deep expertise in listing practices and regulations and the minutiae of running an exchange, while her own team fizzed with excitement and a real commitment towards helping the British economy. Wallis and two colleagues sketching on a flip-chart came up with the ‘Alternative Investment Market’ name, while Lawrence subsequently suggested with the brand abbreviation. At the same time, the new market could make use of the LSE’s expertise, infrastructure, and prestige. ‘The Stock Exchange,’ says Simon Brickles, one of Wallis’ team and subsequently head of AIM,  ‘knew how to operate markets, it had got the facilities, it had got the people, it had got the resources, and it had got the prestige.  On the other hand, I became convinced that AIM could have its separate values, its own separate rules, its own separate problems, opportunities and so on and that was Michael Lawrence’s vision.’

A stock exchange is a bundle of wires and screens. But it is also a community of trust, shared expectations and commitment to certain norms. The LSE already possessed the former, so the team set about building the latter through an extended and iterative conversation with future participants. They sent out a consultation and the responses drove the construction of the new market. As responses were received they were distributed among the small team, reviewed, and discussed at a morning meeting. Megan Butler, then a young lawyer at the LSE (now Director of Supervision at the FCA) advised the group on developing the Rulebook and regulatory compliance. The team had to manage such technical issues, often with the support of the community from beyond the Exchange. But most of all, the new market had to be talked into being. Martin Hughes, a young executive on secondment to the team from Scottish Enterprise with the responsibility of promoting the market north of the border describes the process as, ‘Knowledge building, consensus building, to inform an emergent model…a continuous iterative process….It was all about the market, getting to understand it, and that engagement.  You could tell that the relationship was very close.  You could tell that it was understood why it was important…there was never anyone who was not willing to engage properly, and think about it.’ The consultation documents, responses from the community, follow-up telephone calls, meetings, or conversations over dinner, held to a steady pace by the Exchange’s somewhat pedantic and bureaucratic routines, slowly wove a market from threads of narrative and conversation. As a place of collective trust, recognition and expectation, the market was performed, acted out, spoken into being by the narratives and conversations that underpinned it. These in turn were held together by a shared commitment to the wonderful institution of UK plc.

But there was still battles to be fought, turf wars over who would enjoy the benefits of this new market. Would it be UK plc, really? Within the discourse of entrepreneurial team GB there was still plenty of scope for arranging the trading mechanisms in as comfortable manner as possible. As Brickles says, the LSE already knew how to operate markets. It already had the structures, the trading institutions and the technology. These, as we saw in previous episodes, had developed throughout the previous two decades pushed by reforming technologists and regulatory changes. One of the things that these technologists had achieved, according to the sociologist Juan Pablo Pardo-Guerra, was the institution of electronic order book trading across the LSE. Under this arrangement, buyers and sellers are automatically matched, cutting out the need for the expensive market-making middleman. The technologists saw themselves as visionaries pursuing a better kind of financial market that used technology to deliver efficiency, narrow prices, and to offer the eventual customers (investors) a better deal. Scholars like Pardo Guerra and Donald MacKenzie have shown that motivation at work throughout the technological development of digital markets; in this instance it was a rival firm called TradePoint that forced the LSE to adopt order books and disenfranchise the market-makers.[4] (Much of today’s episode comes from my own research, but as always full references are provided in the transcript on the podcast website.)

The alternative to an order book market is a quote driven market, where market makers offer buy and sell prices and make their money on the difference between the two. The more market-makers competing to offer prices in a single security, the narrower those spreads will be. With only a small handful of market-makers, Winterflood Securities pre-eminent among them, the USM had been a quote driven market and a comfortable one, with ‘spreads wide enough to drive an 18 wheel truck through’. The justification offered was always that that less liquid markets – those with fewer buyers and sellers – required some kind of intermediation in order to make transactions happen. Ironically, for even less liquid stocks order books become useful again, as market makers do not want to hold stock they might not be able to sell. John Jenkins’ notebooks, taking lists of potential buyers and sellers, were a version of order book market, but one that combined intervention as well – will the seller take 990 as opposed to a thousand, will the buyer be able to offer a 990 instead of 980, and so forth. At the more liquid end of Jenkins’ Rule 4.2 operation, however, his firm was offering quotes as a market-maker, and the community could see that this model could form the basis for the new market. There was no need to reinvent the wheel. ‘Here was a group of companies,’ says Andrew Buchanan, a small company-focused fund manager, ‘in which there seemed to be some perfectly reasonable trading activity but no obvious mechanism. And yet the lack of a mechanism didn’t seem to inhibit the liquidity in the stock.  So what was the problem?  They could build on 4.2 to make it a reasonable market, a quote-driven market place…’ Within the LSE, Wallis’ team had arrived at the same conclusion, proposing that they would re-regulate Rule 535.2 (as it now was) to an acceptable level, playing out the strategic objectives of the seven point plan.

The market-makers held onto their turf, for now at least.

A secondary problem concerned the kind of companies that might be listed on this new market, and who would take responsibility for them. An onerous admission process handled by the LSE’s listing office seemed out of step with the UK plc narrative and the entrepreneurial aspirations that it embodied. How could the companies of the future raise funds with some worried regulator peering over the shoulders of potential investors? Again, the new market took the success of Rule 4.2 as a model. It would be a market based on caveat emptor, buyer beware. ‘Private investors,’ said Wallis, ‘investors who are buying on Rule 4.2 don’t seem to mind – it’s very much a caveat emptor market – don’t seem to mind that it’s not regulated. They know what they’re going in for. Maybe this is going to be the solution, [if] we build a market around what was Rule 535.2 dealing.’ And here we begin to see the story changing: no longer simply about UK plc, but also about freedom of choice and the appropriate role of regulation in a capital market. For the neoliberal, of course, the role of regulation is not to protect consumers but allow them to protect themselves through freedom of choice, and that’s exactly how Brickles tells it: ‘I don’t think [heavy regulation] is the business of a Stock Exchange, we should be the high temple of capitalism, we should allow as much choice and freedom as compatible with a reasonable level of investor protection.’ Investor protection here takes the form of making sure that firms disclose all relevant information, so investors can choose properly. And how to do that?

Originally, one of the guiding principles of this new market was ease of access for companies, which in practice meant low costs. As most of the costs of listing on a stock market come from fees paid to advisers it was sensible to suggest that firms didn’t need them. In particular they might not need a sponsor, an expensive corporate finance house whose role it was to scrutinise the firm in the run-up to its public listing. There were squeals from the community: just imagine those poor, unprotected investors! Sotto voce: just imagine those rich fat fees! Most of the investors were institutions who knew their business well enough and would be happy to do without advisers whose fees they eventually would pay, as shareholders, but their voices were outnumbered as the consultation results came in. For decency’s sake, some kind of sponsor must be necessary. Wallis’ team hatched an ingenious compromise, proposing that each firm would employ a Nominated Advisor, or Nomad, with certain guaranteed professional qualifications and experience. These Nomads would police the companies on the market, ensuring full disclosure and certain basic probity, but without needing the Exchange to take on responsibility of oversight.

But who would police the Nomads? Who would guard the guards? Each other, of course! You could call this a reputational market, if you like. Everyone knew everyone else and if you gained a reputation for being somewhat sharp you would find future opportunities rapidly shrinking. Investors sold substandard merchandise have very long memories. This was scarcely a decade after the closure of the LSE’s trading floor, and the new market harnessed the close social networks that persisted in the City, many from before the Big Bang. It relied upon, in Brickles’ words, ‘the tools and instruments of a club’: blackballing and (mostly private) censure. Only in real cases of malfeasance would the Exchange pursue the nuclear option and offer a public reprimand. As one former director of the LSE put it, ‘When you run a stock exchange…you have two rulebooks.  One is the written rulebook and the other is the unwritten rulebook. When it came to AIM, there was a network underneath which says, that company, don’t touch it.  And so an awful lot of this stuff was unwritten, unrecorded…Can’t discuss it publicly, deny all knowledge.’ Some feel that market is not strict enough in dealing with errant Nomads. ‘It was always implicit,’ says the same director, ‘we would shoot one a year pour encourager les autres…I think the Stock Exchange didn’t do that.  They were too obsessed with the marketing, getting companies on.’

Clubs are never quite as strict as they claim to be.

Back to our narratives. The narrative of the market as the engine of an entrepreneurial UK plc has metamorphosed into a narrative of the market as a high temple of capitalism focused on choice and disclosure; but the narrative of UK plc was never, as we saw in the last episode, free from special pleading and the self-interest of one group or another, and so it remained. UK plc proved durable enough to pull participants into the new market and to give rise to an organisational structure where orders are filled through a quote-driven mechanism, preserving a profitable niche for a handful of market-makers, particularly Winterflood Securities (that name again!). And the administrative underpinnings of capitalism’s high temple, the necessity for full disclosure so that investors can take their chances on an informed basis has grown into the requirement that listees retain an advisory firm with its executives drawn from a small and carefully qualifying pool – those who had already conducted a certain number of transactions in the market. The Exchange, as one interviewee put it, didn’t want just anyone turning up and building a reputation on the back of the market they needed to already have a reputation. If you wanted to play, you already had to be in the club.

This sounds like a coup to me. And you won’t be surprised to hear that by the late 1990s Theresa Wallis had slipped quietly away from the market she created, away from the Exchange as a whole, almost out of the story altogether. The chaps were back on top.

Finance scholars describe the Nomad system as ‘private sector regulation’ and there have been long debates about whether it works or not.[5] But there’s no ignoring the fact that AIM’s model has been a success. Hundreds of companies have joined the market and raised funds through it. The combined capitalisation of the market is roughly a hundred billion pounds sterling. The model has been adopted worldwide, especially since the NASDAQ model fell out of favour in the post-dotcom world. The ambition to help growing firms seems stronger now than it did in the market’s second decade, an era of globalisation that I will cover in a future episode. The battle over order books has persisted and the market operates a hybrid system, with electronic matching for larger firms and market-makers still very present among the less-often traded securities. Watching these traders at work is remarkable, in fact, and I’ll pick this up in due course, too.

And I wonder if, after all, AIM’s structure helps us to see new possibilities for the organisation of financial markets. For giant global financial markets, as scholars have repeatedly shown, are modelled on a particular conception of how markets should work, the efficient market hypothesis proposed by the economist Eugene Fama. In essence, Fama’s hypothesis suggests that markets are fundamentally efficient and that all the information you need is in the price. Fama’s theory, as literary scholar Paul Crosthwaite and others have shown, claims an intellectual lineage from Adam Smith’s Invisible Hand through the neoliberalism of Frederick Hayek: a commitment to the market as an all-powerful, computationally supreme mechanism, capable of spontaneous organization, what Hayek calls a ‘catallaxy’. [refs] Financial markets epitomize this all-knowing, self-organizing, quasi-natural phenomenon. Moreover, if markets offer a glimpse of pure knowledge, the proliferation of obscure derivative contracts seems less like a massive increase in knowable risk , and more like an increase in the resources available to future-divining trade-seers.

The role of market operators, then, is to get everything else out of the way to allow a clear, synchronous, global view of that wondrous price, so that buyers and sellers can adjust their behaviour accordingly. AIM’s organisation is more akin to that of a producers market, where those supplying goods keep an eye on each other and work out prices among themselves. It’s more like a farmers market than a Fama market. Sorry, I couldn’t resist.

Does this offer ways forward for rethinking finance? To be honest, I’m not sure, especially in view of the story I’ve just told you. It does certainly offer a means of stepping away from the global, all-knowing, Fama market which some might suspect not to be as efficient as all that, especially in the decade-long wake of the financial crisis. It does seem to offer a way of doing things differently. Despite the capture and social closure, the incarceration, as Kearney would put it, I wonder if there’s a germ of emancipation in here somewhere. Hats off to Theresa Wallis and her gang for figuring this out.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe or email me on philiproscoe@outlook.com. Thank you for listening. Please join me next time, when I’ll be back to 1999 and the moment of dotcom madness.




Sound effects under an attribution licence from freesound.com

Prison door lock https://freesound.org/people/RobertMThomas/sounds/151136/

Footsteps and locks https://freesound.org/people/RobertMThomas/sounds/151120/

Champagne cork https://freesound.org/people/KenRT/sounds/392624/

Champagne pouring https://freesound.org/people/Puniho/sounds/169193/



[1] Richard Kearney, Strangers, Gods and Monsters (Abingdon: Routledge, 2003), 179.

[2] This episode relies upon my history of London’s smaller company markets: Roscoe, P. (2017) The rise and fall of the penny-share offer: A historical sociology of London’s smaller company markets. University of St Andrews. 120 p. Available https://research-repository.st-andrews.ac.uk/handle/10023/11688

[3] https://en.wikipedia.org/wiki/Skunk_Works

[4] Juan Pablo Pardo-Guerra, Automating Finance: Infrastructures, Engineers, and the Making of Electronic Markets (Oxfoird: Oxford University Press, 2019); Donald MacKenzie and Juan Pablo Pardo-Guerra, “Insurgent Capitalism: Island, Bricolage and the Re-Making of Finance,” Economy and Society 43, no. 2 (2014).

[5] According Gerakos et al., firms listing on AIM underperform peers listed on more regulated exchanges, less regulated exchanges (e.g. the American ‘Pink Sheets’ OTC market) and even private equity, and are more likely to fail than firms on other markets. On the other hand, Nielsson argues that AIM-listed firms are of equivalent quality to those listing in more regulated markets, and simply do not meet the listing criteria of more established markets. Scholars do agree that AIM offers a successful fund-raising venue for smaller companies. Joseph Gerakos, Mark Lang, and Mark Maffett, “Post-Listing Performance and Private Sector Regulation: The Experience of London’s Alternative Investment Market,” Journal of Accounting and Economics 56, no. 2–3, Supplement 1 (2013); Ulf Nielsson, “Do Less Regulated Markets Attract Lower Quality Firms? Evidence from the London Aim Market,” Journal of Financial Intermediation 22, no. 3 (2013).

Episode 11. UK plc

In 1995 the London Stock exchange set up its junior market, AIM, an engine for UK plc. This episode explores how the narrative of entrepreneurial Britain brought this new market into being. That’s how the story goes, at least. The history turns out to be a little more complicated. This episode looks back to London of the mid 1990s, as a the country found itself transformed by the new dynamism of globalization. There’s a little bit of social theory, and in coming episodes we’ll be seeing stories through the eyes of a much younger me, so I get an introduction too. [Warning: some market vulgarity in this episode.]


The heroes’ hideout in Lock Stock – just across the road from our office

In August 1999 I was twenty-five years old and didn’t have a clue what I was doing. I like to think that makes me one of the good guys, an innocent swept up in the maelstrom of dotcom speculation, but in truth it made me into kind of collaborator, happy to be wined and dined and to repeat the lines that I was spun by the less scrupulous as they promoted their wares to a credulous and excited public. I was naive enough not to realise that regular lunches at London’s finest restaurants do not come free; that there is always a reason, and that someone is always paying. Besides, I wasn’t long out of university and in my sheltered life no one had really lied to me before. Not the barefaced lies of the kind I was to encounter as a journalist. No one had ever sat there, leaned back, puffed on a cigar, looked me in the eye and told me a barefaced, million-dollar lie.

I was a young reporter at the newly formed Shares Magazine. I liked the job.  I liked the deal it came with even more: being handed the first gin and tonic as the hour hand crept towards one pm; riding across London in the back of a black Mercedes, on the way to air my views in a television studio at Bloomberg or the Money Channel; the buzz of young colleagues and new technology and the sense that the world was changing for the better. I liked the fact that a mysterious woman called Bella, whom I never met, used to telephone me regularly for syndicated radio news bulletins that I was never up early enough to hear. Most of all, I liked the smell of money being made and believed that somehow, in a small way, some of it could be mine. When one is twenty-something and impoverished student days are a very real memory, it is a fine thing indeed to be a stocks and shares hack in the middle of a boom.

Those who only know London now can’t begin to imagine how different it was just twenty years ago. There was no Gherkin towering over the London skyline, no Shard on the south bank. The tallest building in the city was the Tower 42: most people still thought of it as the NatWest Tower and could remember the plume of smoke trailing from the top after the IRA bombed it in 1993. There was no Facebook, no YouTube. Alta Vista was the go-to web search engine, and the smartphone remained a developer’s dream. If you wanted to ‘go on the Internet’ at home you plugged a cable from your computer into the phone socket and listened to beeps and wheezes as the connection dials up. No one had ever heard of al-Qaeda.

But times were changing.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. In the second part of this podcast series, I’ll be looking at the stories we tell about the stock market. You might be surprised how much power stories have had on the shape and influence of financial markets, from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

The story for today is one of UK plc, and it came to prominence in the stock market world during the mid-1990s through a particular combination of politics and organisational happenstance. It’s a story that lay behind the world I discovered in London in the late 1990s, the bread and butter of my work at Shares. UK PLC.

You’ll remember from the last episode how the first great novelist, Daniel Defoe talked of projects, ‘vast undertakings, too big to be managed, therefore likely to come to nothing. His age, the turn of the eighteenth century, was an age of projects and projectors (his charming name for those who speculated on these projects in hope of gain, what we might call an entrepreneur today). So too were the 1990s, in London at least, rich with ‘the humour of invention’, which produced ‘new contrivances, engines, and projects to get money’. All around central London, jackhammers shrilled as tower blocks and profits shot upwards together. The general public was piling into the stock market, everyone hoping to get a part of the next dotcom sensation.  ‘Shares Magazine’, or just plain ‘Shares’, had been set up early in 1999 to capitalise on some of that exuberance.

It was fronted up Ross Greenwood, a cheerful, kind-hearted Australian pundit, now finance editor for Australian Channel Nine, who was at the time taking a sabbatical in London. The cover of one of the early issues featured a newspaper small-ad, bolded and circled in red pen: earn £100,000 a year investing from home, the block print proclaimed. As hordes of punters, many with remarkably little financial literacy, strove to find their little piece of the dot-com magic, copies of the magazine flew off the shelves and the publishers, tough veterans of trade magazines and commercial advertising sales, rubbed their hands with glee. It was boom time.

Their only problem was getting the staff. Not just competent staff, but anybody at all. The British economy was in overdrive, and young professionals hopped from job to job with abandon. I emerged blinking from a long stint in university libraries to find my friends racing around in cobra-striped hatchbacks, some of which even had six gears. Everyone I knew with any skills at all had a job and enough freelance work on the side to put down a deposit on their flat (for property in 1999 was still almost affordable, even in London) with enough left over for the inevitable purple emulsion. I attended an undemanding interview with Ross, after which, with the mixture of derring-do and desperation born of economic ambition and organisational crisis, Shares Magazine hired me.

The magazine’s offices were in a shabby, unpleasant, overheated building in Southwark. Throughout history, Southwark has had a peculiar relationship with the City of London. It lies due south, across the river. It became the lawless no man’s land on the city’s doorstep, its ancient flint cathedral rising from among dens of squalor and iniquity. The city’s prison, ‘the Clink’, was built there in Clink Lane. Brothels and gambling, which were prohibited in the City itself, were permitted. Even in 1999, it remained the City’s poor relation, offering cheap space for those providing goods and services to their rich neighbours on the other side of the river. Borough Market, now famous as a gentrified foodie hangout, served as the fruit and vegetable market for much of London. One stepped out of the newly opened steel and glass underground station and back in time: shouting porters, forklift trucks shifting huge crates of vegetables, the green paint of the Victorian ironwork overhead covered in a thick layer of soot and grime. Trains to Dover and Brighton rattled along overhead tracks banked up on Victorian redbrick arches, and rats feasted on remains of fruit and vegetables pulped by the wheels of delivery vans and handcarts. Across the road, a pub called The Market Porter enjoyed special licencing privileges, and at eight in the morning the doors would be wide open, the voices of those just off shift carrying out on air rich with the smells of drink and fried food.

This isn’t intended as a paean to 1999. If it is, it’s a story of how we grasped something special, then spaffed it all away, as our prime minister might say. It seems to me that we had a glimpse of a new set of possibilities, a collaborative, democratic future enabled by technologies, the significance of which we were just beginning to grasp. It seemed that politicians had finally cracked the boom and bust thing, and that the steady growth of prosperity and material comfort in large parts of Britain (though not, of course in others, which I could not see from my privileged and isolated viewpoint) would go on for ever. We were wealthy enough for the scruffiness of Borough market to seem cool, not so wealthy as to have airbrushed it out of existence. Globalization shimmered with promise in the space where, scarcely more than a decade earlier, we were still terrified of nuclear annihilation. We were Europhile, even Francophile: Joanne Harris published her novel Chocolat to a huge audience just discovering the glories and idiosyncrasies of rural France. There was an idea that Cambridge’s Silicon Fen might soon rival Silicon Valley. Academics wrote trendy books  about the coming knowledge economy, and the excitement in the stock market seemed based on a genuine possibility that some of this new prosperity might be shared around. It really did look, for a moment, that history was going to end well.

Of course, it did not work out that way, and maybe it was never going to. Perhaps it was just my youthful enthusiasm that gave rise to such a romantic vision. Inevitably, we ate it all up: the lure of other people’s money is always too much for some to resist. In Silicon Valley, the grab was already underway, as the giants that shape today’s world began to appear: Amazon, founded in 1994, Google in 1998, and Facebook a latecomer in 2004. Global free trade meant globally free money, and it wasn’t long before corporations had given up any pretence at contributing to the national coffers of those countries where they traded. If today’s contemporary Brexit discourse of a buccaneering Britain straddling global trade sounds depressingly like a broken recording of the 1990s script, that’s because for many people globalisation took us in some quite unexpected directions. Unlike the Brexiters, I know we can’t go back in time, put the genie of globalization back in its box.  Let’s do some proper history instead.

You’ll remember from episode 4 how Sixtus surfed the growing wave of enthusiasm for of all things entrepreneurial to set up his business angel magazine. At the same time, as Britain shook off the grimy, grey, strike ridden 1970s and embraced Margaret Thatcher’s new ideas about markets and business – the government began to pressure the London Stock Exchange to finance entrepreneurial firms. Of course, this is a story too: there was just as much industrial unrest under Thatcher and much of Britain liked organised industry and the security that came with it a lot more than it did independent, dynamic entrepreneurship. But still, the LSE, an august institution that had only opened its doors to women in 1973, and not long previously had refused to admit car manufacturer Fiat, presumably on the grounds of being too Italian, suddenly found itself chastened for not being entrepreneurial enough.

Meanwhile, an over-the-counter (OTC) market had sprang up entirely independently of the LSE. Stockbroking firms could apply to the DTI for a licence to deal in securities and become a ‘licenced dealer’ able to act in ‘dual capacity’ as broker and market maker. MJH Nightingale, later known as Granville & Co, was an early innovator. It was all above board: the government backed venture capital house ICFC had a small department investing in privately held firms and bought heavily from Nightingale. But the cowboys were along soon enough. You’ll remember Tom Wilmot – yes, of the pink Bentley with its boot full of sausages (and if you don’t remember him, check out episode nine) – who did a great deal to damage the reputation of the over-the-counter markets. But he wasn’t the worst. That honour goes to the infamous Barlow Clowes affair which eventually cost the government £153 million in compensation. Barlow Clowes was a licensed dealer, except it didn’t have a license – not to start with at least. The firm’s risk-free bond investment opportunity turned out simply to be a means for its founder, Peter Clowes, to buy things – a yacht, three private jets, a helicopter and a French chateau – that he couldn’t afford without borrowing the life savings of pensioners. When, in 1985, someone pointed out that Clowes didn’t have a license, the DTI obligingly issued one and renewed it, annually, for the next two years; by the time the authorities got round to winding up the scam £190 million had disappeared. Peter Clowes was sent to jail for 10 years, but was out after four, much to the disgust of those who had lost their savings. He too provides a postscript, though it is rather tawdrier than the Wilmots’ effort: in 1999 he was caught making false claims for jobseekers allowance and did another four months in prison.

Yet the over-the-counter market thrived. Shares traded on the OTC qualified for a whole range of tax reliefs. The Business Expansion Scheme, launched in 1983, offered very generous tax breaks on money invested in growing companies, so generous, in fact that one financier remembers it as a kind of scam in its own right, albeit a government sanctioned one. In an era when the top rate of tax was 60%, if one got the tax back on an investment, one did not have to be a mastermind to generate an acceptable return. For a while property investment was also included, though this perk was removed after a while as it was being ‘abused’ by many financiers making a tidy living selling property deals through the scheme. The LSE was nothing to with this market, but if you throw enough mud around some of it will stick to passers-by, and the LSE, under pressure from all sides and determined to ‘ingratiate itself with the new Conservative government’, set up its own junior market Unlisted Securities Market (USM) in November 1981.[1] It was much easier to get onto than the Official List and was perfectly timed for the mid-eighties bull market[2]. Sir Nicholas Goodison, businessman and chairman of the Stock Exchange from 1976 to 1986, described the introduction of the market as ‘a very important event in Britain’s commercial history…[the USM] greatly helped the progress of the British economy in terms of products, services, and jobs… this new market did a lot to alter attitudes to risk among investors who, during the 1960s and 1970s, had become averse to risk’.[3] Goodison captures the story here: a Britain transformed from a risk averse, socialist backwater to a vibrant engine of commerce, risk-taking and entrepreneurial. This was UK plc, and it offered plenty of opportunity for those well-placed to take it. (As always, full references are available in the transcript on the podcast website; most of the episode relies on my own history of these markets, which you can download if you wish[4]).

You’ll remember Brian Winterflood from episode five, the young jobber whose partner advised him to ‘mind his fucking eye’ trading with the firm’s money. By now Winterflood was a partner himself, in Bisgood Bishop, one of the larger firms. He recognised the USM opportunity for what it was and, despite a lukewarm response from his colleagues, determined that his firm would offer prices in every single USM stock. This was a stroke of genius. Remember how the old stock exchange trading floor was organised by sector, with markets in South African stocks, say, physically separate from those in the leisure or mining industries. Winterflood realised that brokers had no desire to trail round the house trying to find buyers for these strange little USM shares, and that they would rather come straight to him where they knew that they’d get a deal. Soon his firm’s pitch was a ‘wall of stocks’ and his nickname ‘Mr USM’. Market-making on the USM could be a profitable business. ‘Winterflood,’ said one interviewee, ‘made a fortune because his bid-offer spreads were embarrassing…you could drive an 18-wheel truck through them’. It need not be as risky as all that. Market-makers could avoid the worst of the risk by trying not to hold stock; you did not have to, in the pithy words of one interviewee, ‘put your cock in the custard.’ For students of gender and masculinity in the markets, there’s another gem.

The crash of 1987 eventually caught up with the USM. The boom years that had made it an easy venue to raise money had ended: in 1992 only two companies had joined the market, from a peak of 103 new arrivals in 1988. A Stock Exchange consultation, published in December 1992, conceded that ‘the quality and attractiveness of the USM has deteriorated in the eyes of companies and investors.’ The sentiment was shared by many in the City. The USM had a ‘spotty reputation’.  New European regulations lightened the requirements of the official list, and eroded the USM’s offering. For these reasons, so the story goes, the LSE decided to close its junior market, with an unnamed official joking in a speech, ‘it is often said that you cannot have too much of a good thing, but to have two, almost identical, markets in one exchange is going too far.’[5]

In fact, that’s not quite the whole story. What makes a stock market? Well, as we have seen, it needs buildings and screens and wires, but these existed anyway because they serviced the main market or Official List. The clue is in the name: a stock market is also just a list, telling the doorman who is allowed in and who must be kept out, and a set of rules of conduct for those who make it inside. In these terms, the USM was just an appendix, an afterthought, a small set of rules heavily cross-referenced to the Official List rulebook, making the continuation of its very existence a tedious administrative chore. The burden was carried by the LSE’s listings department, which existed as an almost entirely separate entity from the rest of the Exchange. Its office contained market sensitive information and was separated by coded door locks. It had a reputation for bureaucratic stolidity. It had unparalleled expertise in the regulatory aspects of market administration, but was disconnected from the commercial side of what was by then a business in its own right. Fed up with the administrative work on this failing market, the Listings Department decided to shut it down. ‘They weren’t commercial,’ said one interviewee, ‘I remember the…management meeting, and the Head of Listing came into the room and said, “We’ve been looking at the USM…there’s really no point in maintaining a separate section. What we’ll do is bang the whole thing together. Yeah, and we’re going to write to the companies and say they’ve got a year to either comply with the main market rules or basically they can piss off”…And, of course, there was an absolute maelstrom.’

Perhaps it’s time for a little economic sociology. Neil Fligstein, an American scholar and one of the biggest names in social theory, has proposed an account of social change based upon conflict in what he calls ‘strategic action fields’.

‘A strategic action field,’ he writes, ‘is a meso-level social order where actors (who can be individual or collective) interact with knowledge of one another under a set of common understandings about the purposes of the field, the relationships in the field (including who has power and why), and the field’s rules…’.

These fields are distinguished by two things. First of all, everyone knows the rules. Everyone knows the purpose of the field. Second, there is scarcity, of customers, of resources, of paper for the photocopier. As there is never enough to go around, fields are characterised by continual internal struggle. Some actors – be they people in an office-level squabble over resources – or corporations in a global battle for sales – are more powerful than others. And Fligstein’s really crucial insight is as follows: these powerful actors make use of their status and control over resources to further strengthen their status and control over resources. Fligstein’s vision of the world is one of strife and competition, one-upmanship, and it makes me shudder (it seems to be a peculiarly American vision, if I may say so). But, in the end, the usefulness of a theory is determined by its ability to explain, and I find the notion of competition within fields very useful for thinking things through. When the first London jobbers tumbled out of the coffee houses of Exchange Alley and into their own building in Threadneedle Street, which they purchased to rent to newcomers and less successful peers, what we see is field dynamics at work: the big fellows stamping on the heads of the little ones, again. The very existence of the London Stock Exchange is down to this kind of strategic interactions.

Back to our story. If this small company world – the USM – is taken as a field, who would the high-status actors – the big fellows – be? Brian Winterflood, ‘Mr USM’, who had cornered the action as far as market-making went; Andrew Beeson, then senior partner of Beeson Gregory, a successful small-company stockbroker; and Ronnie (now Sir Ronald) Cohen, a leading venture capitalist, who depended upon the USM as a mechanism for getting his money out of successful investments. These men had staked out profitable claims in the junior market, and all of a sudden their entire field threatened to collapse into a much bigger one. They made a noise. They shouted loudly about UK plc, and how important it was, and by implication, how important they were and how they should be allowed to carry on doing what they were doing. Cohen argued that without a means of exit, financial contributions to the venture capital sector would shrink, and an important part of the entrepreneurial engine of UK plc would grind to a halt. Winterflood, then in the process of selling his recently-founded Winterflood Securities to Close Brothers for £15 million, campaigned most forcibly. Cohen, Beeson and Winterflood formed a ‘ginger group’ (in Winterflood’s words) to lobby politicians and the LSE on behalf of UK plc. This group became the City Group for Smaller Companies (CISCO, later the Quoted Companies Alliance, or QCA. CISCO argued that there was an underlying demand for a junior market, that the Exchange was reacting too hastily to a long and deep recession, and that better economic times were coming. Its April 1993 newsletter contained a long plan for a three tier equity market, the lowest tier being an ‘Enterprise Market’. The documents even hinted that CISCO would be prepared to support a new market beyond the purview of the LSE, if necessary, and Cohen spent much effort trying to set up a pan-European market.[6]

Those managers at the LSE who faced the financial community after the closure of the USM remember a deep anger among brokers and investment managers in the City and across the regions. There was a concern that a uniquely British small-company equity culture would wither away. The community saw the Exchange as out of step with the zeitgeist of a nation trying hard to recover from a sharp economic downturn. By March 1993 Nigel Atkinson, head of the LSE’s Listing Department, had begun to give ground. The LSE agreed extend the USM’s life by several months and set up a working party to consider a new market.  But here’s the thing: the LSE was still the big beast in the room. It did not cave in to pressure at once. It denied the fundamental claim that it was prejudicing the entrepreneurial dynamism of the United Kingdom. ‘I totally refute suggestions that…the Exchange is somehow stifling entrepreneurs,’ said Atkinson. Not everyone believed the apocalyptic predictions about the end of entrepreneurial Britain, either. As one broker pithily put it, ‘if you couldn’t deal in a stock it was because it was shit.’

It is probably true that the Exchange felt unusually vulnerable at the time. In March 1993, the London Stock Exchange had been forced to scrap its Taurus paperless settlement system, a vast fiasco of an IT project that embarrassed it in front of the City and caused it eventually to lose its settlement function entirely. The LSE looked directionless and its chief executive Peter Rawlins resigned. The media did not spare its barbs: Rawlins, reported the Independent, ‘was a frustrated thespian whose early search for fame took him as far as an appearance on Bruce Forsyth’s Generation Game.’ But still, the suggestion that a handful of big hitters took on the LSE and forced it to create a new market seems far-fetched, persistent though the story may be, and useful to the men that it lionizes.

What can field theory tell us? Don’t forget that the LSE is a participant in a field too, and it also has to look out for its strategic advantage. Was it the constant refrain of UK plc from these agitators who buzzed like angry wasps around the gorilla that was the London Stock Exchange? Field theory says not: these are participants in their own field, providing services to investors and companies, not that of the LSE, a competitive market for exchange services. Exchanges are business too, a factor that has shaped their development from the earliest days. You may remember John Jenkins, the jobber who specialized in matched bargains, piling up orders in his notebook. In episode 8 we saw how he set up a business trading over the counter stocks, two guys and a sofa above the record shop in Finsbury Square, but still under the Exchange’s regulatory aegis. Jenkins was a trustworthy operator, so he thrived, but nonetheless the LSE could not help noticing and being discomfited by a fledgling capital market growing independently within its own backyard. That discomfort must have increased when entrepreneurial corporate advisors started re-purposing the Exchange’s own public issue documents to raise money for start-up firms with no track record and sometimes very sketchy prospects. And when Jenkins did a deal with Reuters to disseminate market prices and inadvertently stumbled into the exchange’s new preserve of data sales, that was too much. It was forced to act. The new market that emerged in place of the USM was designed to put a stop to all of this, and entrench the London Stock Exchange as dynamic contributor to UK plc.  The narrative that had begun with the vigorous protestations of the CISCO lobbyists was taken up by the Exchange. It shaped the market that came to be known as AIM and the world that grew up to service it, of fledgling companies, private investors, whizz-bang start-ups and of course, credulous young journalists hoping for a taste of the big time. I’ll carry on that story in the next episode.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe or email me on philiproscoe@outlook.com. Thank you for listening, and see you next time.


Sounds from Freesound under creative commons licences

Passing train https://freesound.org/people/Robinhood76/sounds/159627/

Trading floor https://freesound.org/people/touchassembly/sounds/146320/

Market traders https://freesound.org/people/deleted_user_1116756/sounds/74460/


[1] Posner, The Origins of Europe’s New Stock Markets, 66.

[2] This market offered much lighter admission rules including a three, rather than five-year trading record, no minimum capitalisation or pre-vetting of listing particulars, and a smaller public float. Sridhar Arcot, Julia Black, and Geoffrey Owen, “From Local to Global: The Rise of Aim as a Stock Market for Growing Companies: A Comprehensive Report Analysing the Growth of Aim,” (London: London School of Economics, 2007).

[3] Buckland and Davis, The Unlisted Securities Market.

[4] You’ll find my narrative history of these markets, with comprehensive sources, at https://research-repository.st-andrews.ac.uk/handle/10023/11688

[5] Posner, The Origins of Europe’s New Stock Markets, 66.

[6] Cisco Newsletter, February 1993, p.8; April 1993, p.5-16.

Episode 10. Where real men make real money

Stories shape our world, and stock markets are no exception. This episode explores the entanglements of fiction and finance, from Robinson Crusoe to American Psycho. We discover how Tom Wolfe cut a deal with Wall Street, making finance male, rich and white, and see how the concept of ‘smartness’ perpetuates elitism and discrimination in Wall Street recruitment. A better stock exchange is going to need a better story; in this second half of my podcast series we’ll be discovering just that.



Imagine the financier. What does he look like? It’s going to be him, for reasons I’ll come to shortly. He’s white, of course. I wouldn’t be surprised if he has a striped shirt and braces – suspenders if you prefer – a perma-tanned face and slicked back hair. He opens his mouth, and you know what’s coming. Yes, greed is good…

It’s Gordon Gekko, a face and a speech burned into our collective imaginings of finance by Michael Douglas’ spellbinding performance. It’s not even a very good film, but it hit the cinemas just a few weeks after the crash of 1987 – where I wound up the last episode at the beginning of the summer – and captured the popular imagination. Gekko, Master of the Universe. We all know that phrase. It comes from Tom Wolfe and his Bonfire of the Vanities. You remember Wolfe’s description of the trading room at Pierce & Pierce, behind the faux English fireplace and club armchairs:

‘a vast space… an oppressive space with a ferocious glare, writhing silhouettes, and the roar. The glare came from a wall of plate glass that faced south, looking out over New York Harbor, the Statue of Liberty, Staten Island, and the Brooklyn and New Jersey shores. The writhing silhouettes were the arms and torsos of young men, few of them older than forty. They had their suit jackets off. They were moving about in an agitated manner and sweating early in the morning and shouting, which created the roar. It was the sound of well-educated young white men baying for money on the bond market.’

This is where men made money, where real men made real money, a supercharged, 1980s version of the heavy industry that had defined a previous generation of masculinity: blue collars and half-moons of perspiration seeping through the shirt, but the shirts are Brooks Brothers, and the rivers in the background run with money, not molten steel. The trading room Wolfe visited for his research was none other than that of Salomon Brothers, where the biggest of all ‘big swinging dicks’ hung out. That phrase is from Michael Lewis’s celebrated Liar’s Poker, his first person account of the buccaneering heyday of Salomon trading in the decade of greed.

These icons of finance are fixed in our collective narrative imagination.

Ironically, true greed doesn’t seem nearly as glamorous as Douglas, Wolfe and Lewis make out. A more fitting exemplar of contemporary elite finance would be the lovable, Latin-quoting everyman Jacob Rees Mogg (described by my friend, an actual classicist, as a ‘faux aristocratic, xenophobic, hedge fund… well, I’ll let you guess the last word), a walking self-parody seen lounging on the front bench of the House of Commons as if it were his private sofa.

Or Martin Shkreli, the former fund manager, self-styled bad boy ‘Pharma Bro’, and capitalist provocateur, who shot to notoriety for buying the rights to an essential HIV medicine and putting the price up by 5000%. Shkreli disgraced himself further by refusing to answer questions in a Congressional hearing and instead leering like a teenager given detention at school but determined not to lose face.[1]

Here he is, interviewed by Forbes, explaining what he would have done differently next time.


Shkreli voice [2]


That’s right. He would have put the prices up more. It was his fiduciary duty to go to 100% of the profit curve, because that’s what they taught him in MBA class. It’s worth watching the video (and you can find the link via the transcript on the podcast website) to see Shkreli hunched over in his hoodie, unable to make eye contact with anyone in the room. This is a man who spent $2 million at auction to buy a one-off Wu Tang Clan album only to have it repossessed by the Federal Government. Who wound up with a prison sentence for fraud, having swindled his investors, and was then – allegedly – slung in solitary confinement for running his hedge fund from prison using a contraband mobile phone. Master of the Universe he is not.

Rees Mogg and Shkreli are characters that you couldn’t make up, or at least you wouldn’t bother doing so. The real stories here are something else, the narratives working in the background, a dream of buccaneering Britain in an ocean of free trade, or the fiducary duty to shareholders, right to the end of the profit curve, no matter what cost. These are the fictions that shape our world. Stories matter.


Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough.

If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance works as it does. In the second part of this podcast series, I’ll be looking at the stories we tell about the stock market. You might be surprised how much influence stories have had on the shape and influence of financial markets from Daniel Defoe to Ayn Rand. I’m trying to grasp the almost post-modern nature of finance, post-modern long before the term was invented, the fact that finance is, most of all, a story. Start-ups are stories, narratives of future possibility; shares and bonds are promises based on narratives of stability and growth. Even money is a story, circulating relations of trust written into banknotes, credit cards and accounts. Stories set the tone, make the rules, determine what counts and what does not. A good stock market needs a good story, so if we’re serious about rebuilding financial institutions then we need to take control of those stories.

Stories matter.

In previous episodes I have suggested that the evolution of finance was driven by erratically developing technologies and political struggles and alliances. This is true, and helps us understand the chaotic history of stock markets and undo neat linear histories of economic and technological progress that lead inexorably to the world of digital high finance, as though there were no other possibility. A sort of Francis Fukuyama does finance, if you will. But it underplays the enormous role played by writing in the development of finance we know today. The literary scholar Mary Poovey has written extensively on the topic, and her 2008 book Genres of the Credit Economy is undoubtedly a masterpiece. Her basic claim is that from the seventeenth century onwards imaginative writing – and there was not, back then, stark demarcation between fact and fiction – helped people to understand the new credit economy and the kinds of value that operated within it. Financial markets are underpinned by styles of writing, and a primary function of writing was to help people get used to the idea of finance. For example, take such mundane financial objects as banknotes and cheques, ledgers and contracts. These are things we use every day. They are written things, but we don’t see that. Money has been so thoroughly naturalised that its identity as writing has disappeared, embedded instead in social processes. Even the written promise to pay is disappearing from banknotes – you can still find it on Bank of England notes but the euro carries only a serial number.

In the seventeenth century, however, these kinds of abstractions were problematic for a population that had always dealt in coinage, in specie. The developing genre of fiction, says Poovey, helps readers to practice trust, tolerate deferral, evaluate character and believe in things that were immaterial, all essential skills for negotiating this market world.

Three hundred years ago, Defoe published Robinson Crusoe. I read this for the first time just a few weeks ago, and cor-blimey, it is not the tame story we learned in primary school: there’s slavery and cannibalism, white supremacism and European-Christian expansionism. Even here we see a pecking order – though Crusoe is not too keen on Catholics, he has no time for them being eaten by heathens. Crusoe gets religion in a big way. And he just shoots everything! No sooner does an endangered beast lumber or roar into view than Crusoe has bagged its hide as a trophy, or as the story progresses, perhaps a hat. He is a model industrious citizen, an archetype of the petty bourgeoisie. He etches a calendar on a post and keeps books of account in a ledger scavenged from his shipwreck. In sum, Crusoe imposes the worldview of any good seventeenth century Englishman on his tiny island dominion, where he eventually becomes king over a growing and hard-working population. No wonder Marx had such fun with him!

Daniel Defoe did not just write Robinson Crusoe. Defoe was a central figure in an era sometimes called the ‘Age of Projects’. A prolific author of fiction and non-fiction, one of the first to earn a living from his pen and shape the world as he did so. Valerie Hamilton and Martin Parker, scholars who work in my own field, have drawn attention to the parallels between Defoe’s fictions and the rash of corporations that emerged in the same period.

‘The figure of Daniel Defoe,’ they write, ‘inventor, businessman, writer, politician and secret agent, characterises the age. His first published work, An Essay upon Projects (1697) bottles this energy. It is a series of proposals for the social and economic improvement of the nation – on banks, lotteries, women’s education and many other topics. Defoe explains that the richness of ideas at this time was generated from ‘the humour of invention’, which produced ‘new contrivances, engines, and projects to get money’’. Defoe defined a project as a vast undertaking, too big to be managed, and therefore likely to come to nothing.  Crusoe’s task is a project, the unlikely, implausible but ultimately fruitful endeavour of turning brute nature into a well-disciplined, productive domain.

For Hamilton and Parker the project is epitomised by corporations, and particularly the Bank of England, which grew from the chatter of a few traders in Jonathan’s coffee house, as we saw in episode three, into a building of, as they put it, ‘timeless rusticated stone’, solid and substantial in the heart of the City of London.[3] I should say, by the way, that you will find full references in the transcript on the podcast webpage.

For Poovey, Defoe’s project was nothing less than the attempt to incite belief through print. ‘In the realm of fiction,’ she writes, ‘the negative connotations associated with invalid money were neutralised by the claim that imaginative writing did not have to refer to anything in the actual world; in the realm of economic theory, the fictive elements intrinsic to credit instruments were neutralised by the introduction of abstractions, which would claim simultaneously to be true and not to be referential.’[4] More plainly, as novelists like Defoe sought to distinguish themselves by refusing to be held to account for the factual content of their stories, so money rode on their tail-coats. A growing cadre of financial journalists aimed ‘to demystify the operations of the city and make even the arcane language of finance familiar to ordinary Britons helped make economic theory seem relevant to everyday life and, not incidentally, make investing in shares in acceptable thing to do with money.’ Walter Bageshot (pronounced badshot) was the exemplar of these men, an early and influential editor of the Economist magazine. Last of all came the experts, the economic theorists, like Stanley Jevons (a distant cousin of mine) whose flights of marginalist fancy and economic scientism, depended both on the existence of dispassionate, factual writing and the availability of abstraction, even the suspension of disbelief, tools assiduously cultivated by the novelists.

We can push the argument further. Marieke de Goede argues that the very existence of the economy, or ‘finance’, as a zone separate from the political and amenable to scientific analysis, is the result of enormous storytelling, narrative work. For her, finance is ‘a discursive domain made possible through performative practices which have to be articulated and re-articulated on a daily basis’. Her examples include the construction of the Dow Jones index, a process that took considerable narrative work. The Dow Jones, or the FTSE, or any other such index, give us a way of talking about stock markets as if they were cut off from the rest of society, distilling them down to a single number, abstracted from all other concerns. As we saw in episode eight, these new narratives – these new numbers – are quickly wrapped up in the wires and screens of the market, forming a sealed, self-contained and self-referential whole.

Or even further: Max Haiven, the Canadian cultural critic, has written about the fictitious nature of money and the role of finance as ‘capital’s imagination’: ‘we are already making a mistake when we take umbrage at the staggering gap between the imaginary world of financial values and what we imagine to be a more real monetary economy. Finance is only a more complicated moment of the capitalist extraction of value. But this abstraction of value is always already at work whenever we speak about resources, social processes, and society in monetary terms.’ [5]


So we can start to see why this all matters. Stories persuade us that some things are normal, and that others are not; that some things matter and that some things do not. They can even persuade us that certain things are inevitable, when they need not be. The cultural critic Mark Fisher quipped that it is easier to imagine the end of the world than it is the end of capitalism. You only have to watch Spielberg’s Ready Player One to see such a vision in action: society collapsed, but the online retail of high-tech goods amazingly unaffected.

As you might have gathered, much of this cultural criticism has a Marxist bent, but it has been equally perceptive on gender and race. When Michael Lewis talks about the big swinging dicks of the forty-first floor, he does more than make us laugh. Lewis’ book is one of those all too common morality tales that end up eulogising the thing they set out to censure. It is no surprise that scores of undergraduates, keen to make their way into the ritzy world of investment banking, took up Liar’s Poker as a kind of how-to guide; even though, as Lewis makes plainly and comically clear, his own intro into that world comes entirely through personal connection and lucky chance. At the beginning of this episode I suggested that the financier we imagined would almost certainly be a he, and there is a reason for this. In the stories, it’s always he: from those Big Swinging you-know-whats, to the well-educated young men of Pierce & Pierce, baying for money in the bond market.


Traders shouting[6]


Tom Wolfe is a particularly bad offender here. Literary scholar Leigh La Berge argues that Bonfire of the Vanities, released days before Black Monday, helped to ‘cement an aesthetic mode that captured the way a new financial class was beginning to identify itself and its economic object.’ The book’s historical realism self-consciously mimics the great realist novels of an earlier era, of Dickens or Balzac: a new city, a new age, with all its vanities and perils, needing a new chronicler.

Wolfe paints finance as complex, a world of leverage buyouts, bond yields, and other such exotic, risky, dangerous creatures; a world accessible only to the ‘masters of the universe’ who inhabited it, and needing the intermediation of a white-suited literary giant to make it legible to the rest of us.

Wolfe makes clear the difficulties involved in representing an exclusive, elite financial world. And yet, says La Berge, ‘Bonfire includes a careful cataloguing of the difference between styles of town cars, codes of cordiality and comportment on the bond trading floor, rules for private school kindergarten admission, and how to hold the Wall Street Journal in public space… What those who had allowed Wolf to observe them received as compensation was a conception of finance as complicated, difficult, hard to define, and reserved for wealthy white men.’ La Berge suggests that Wolfe made a pact with Wall Street. In return for the access he needed, he would take their performances of finance at face value. his prose is littered with exclamation marks, onomatopoeic grunts and groans: ‘Wolfe records sensations of speed, sexual excitement, anxiety and pleasure. In this world of masculine sensation, finance finds its form. Men understand it. As he glares at his wife across the table, alternately planning a bond sale and justifying his affair to himself, Sherman thinks: “Judy understood none of this, did she? No none of it”.’[7]

Wolfe got his ‘masters of the universe’ slogan, from Michael Lewis, and the two wink at each other in their texts: the great interpreters of the excesses of 1980s finance capitalism. Two decades on, and Lewis is still banging the same drum: another crisis, another translation needed, another reproduction of finance as gendered and complicated. The film version of Lewis’ The Big Short, directed by Adam McKay, is even more overt in its presentation of men as cool, rational and in command, and women as distracting and dangerous. Think of the scene where the leading short seller interrogates a topless dancer in a private room as to the viability of her mortgage payments. By the end of the conversation she has stopped dancing, her voice cracked with panic, while our hero calls the office to strike a deal. ‘There’s a bubble’, he says. Gavin Benke, who points this out, notes the very old conceptions of who should and should not participate in the market, concerning not just gender but also class and smartness, all circulating under the surface of the narrative.[8]

The problem is that life imitates art. Literature is too clever, too self-aware to fall into the trap. It tears apart such realist simplicity – think American Psycho’s gruelling banality as non-descript bankers chat about consumer goods and endlessly re-articulate the social mores of which Wolfe is so proud – how to wear a pocket square, for example – interspersed with almost unutterable depictions of depravity and murder. Who could write realist fiction on finance now? But finance self-consciously reproduces these tropes: meetings conducted in strip joints and clients entertained by prostitutes, foul mouthed masculinity and a repertoire of bodily metaphors involving penetration, the steely disposition of the screen trader who pukes in the bin after taking a particularly bad loss and goes on scalping without further pause. All these are examples collected by empirical sociologists, things observed or stories heard in the field. Such narratives police who and who may not enter the market: ‘The stories that they tell and the heroes that they consequently install recreate a world where risk remains unruly and untamed, and stewards’ dreams of stability are there to be exploited,’ write Simon Lilley and Geoff Lightfoot, ‘The steward is seemingly driven to the market by a desire to minimise the potential disruption resulting from the market’s movements. The speculator, however, chooses to go there and to go only there, making their living through better understanding their home than visitors.’[9] Remember, from episode two, Jadwin, the buccaneering speculator in Norris’ great Chicago novel, locked in combat with the market as monster, all maw and tendrils; such metaphors tell how we place ourselves in relation to the world around us. Perhaps financiers better conceive of themselves as hunters, the aboriginal inhabitants of the stock markets. After all, a common expression for those working on a commission basis is ‘eat what you kill’.

Whichever way, no girls allowed here.

These norms are inculcated in financiers before they even get hired. The anthropologist Karen Ho documents the Wall Street recruitment process on the Princeton university campus, seen from her peculiar insider-outsider perspective of Princetonian, but postgraduate student, female and Asian American. She finds these old ideas of who should and who should not participate in the market very much alive. They fasten around the notion of ‘smartness’. Potential recruits are constantly reminded that they are the smartest of the smart, but Ho sees through any claim to intellectual resources. Instead, it means something quite specific:

‘such characteristics as being impeccable and smartly dressed, dashing appearance, mental and physical quickness, aggressiveness and vigour reference the upper-classness, maleness, whiteness and heteronormativity of ideal investment bankers…the specific elitism that is the key valence of smartness…’

And it helps to have been educated at Harvard or Princeton too. Being British, I don’t recognise the fine distinctions between elite American institutions, but Wall Street recruiters do. If you go to Yale, for example, you need to be studying economics; at Penn State it has to be the Wharton School of Business.

‘It is precisely these differentiations between ‘always already smart’ and ‘smart with qualifications,’ between unquestioned, generic and naturalized smartness and smartness that must be proved, that enact and solidify the hierarchies on which elitism is necessarily based.’[10]

Nothing is without purpose in these stories. Ho suggests that this endless recruitment of the smartest of the smart, even when more established employees are being laid off in shrinking markets, serves to bolster the position of Wall Street relative to its clients in corporate America. For if the smartest of the smart are hired by investment banks – even if they do arrive to a drudgery of all-night shifts in rundown and non-descript offices – by definition those hired by corporate America must be less smart. By an easy logical extension, they must do what they’re told and pay the bankers fees. More than this, the stringent selection process, combined with toxic and insecure working conditions persuades bankers that such macho environments need to be spread elsewhere. This, argues Ho, offers a moral justification for the endless corporate manoeuvres, takeovers, and restructurings that Wall Street imposes on its clients across the nation. Paired with the notion of shareholder value, the ‘origin myth of Wall Street’, these fictions licence investment banks to do what they do best: make money. As we saw from Shkreli’s self-justification, the fiduciary duty to shareholders mandates any course of action, however morally despicable.


Stories shape the way we see the world. They underpin stock markets and everything that flows from them. Many of the problems we face, from populist politics to environmental degradation to the structural inequalities that beset the developed world today, flow from the stories of markets. They flow, for example, from the astonishingly persistent and corrosive narrative of shareholder value that we have just seen at work, taking medicines out of the reach of those who need them and creating insecurity, unhappiness and unemployment worldwide. We desperately need a new narrative of finance and markets: a narrative of building, mending, and making. We need institutions able to support this kind of activity, to pursue new modes of organisation that are not quite so wantonly destructive as the global corporation beholden only to its shareholders. So let me tell you another story, a set of stories in which I am myself caught up. They’re not exemplary, but they might be illuminating and even amusing. It’s a project, as Defoe might have said: a vast, uncertain, unmanageable and even foolhardy endeavour. I’m sure you’ll let me know what you think, but be kind: it’s a risky business, sharing.

I’m going to tell you the story of two stock exchanges, started in 1995, and how they did so much to create the world into which I tumbled as a naïve, cub reporter: the grimy underbelly of one of the greatest financial centres on earth.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe or email me on philiproscoe@outlook.com. Thank you for listening, and see you next time.




[1] https://time.com/4207931/martin-shkreli-congress-turing-pharmaceuticals-hearing/

[2] https://www.youtube.com/watch?v=NS9blbLrKv4

[3] Valerie Hamilton and Martin Parker, Daniel Defoe and the Bank of England: The Dark Arts of Projectors (Zero Books, 2016), 11.

[4] Mary Poovey, Genres of the Credit Economy (Chicago: University of Chicago Press, 2008), 89.

[5] Max Haiven, “Finance as Capital’s Imagination? Reimagining Value and Culture in an Age of Fictitious Capital and Crisis,” Social Text 29, no. 3 (108) (2011): 94.

[6] Traders shouting, under creative commons licence from https://freesound.org/people/touchassembly/sounds/146320/

[7] Leigh Claire La Berge, Scandals and Abstraction: Financial Fiction of the Long 1980s (Oxford: Oxford University Press, 2015), 88f.

[8] Gavin Benke, “Humor and Heuristics: Culture, Genre, and Economic Thought in the Big Short,” Journal of Cultural Economy 11, no. 4 (2018).

[9] S Lilley and G Lightfoot, “Trading Narratives,” Organization 13, no. 3 (2006): 371.

[10] Karen Ho, Liquidated (Durham: Duke University Press, 2009), 41, 66.

Episode 9. Finding prices, making prices

What’s in a price? This episode sets out to answer that question, via Joseph Wright’s Experiment on a Bird in a Pump, the construction of the London interbank lending rate, and some ruminations on the nature of fact. As for why it matters, we visit 80’s London for a tale of greed, sausages and a salmon pink Bentley. This is the end of the first part of the podcast. Episodes will restart in September.


There’s a picture hanging in London’s National Gallery called An Experiment on a Bird in a Pump. Painted by Joseph Wright of Derby in 1768, it’s extraordinary. It shines. I try to creep up on it, so as to take its figures by surprise. They are not bothered about me, for they are watching the experiment. Near the centre of the canvass there is a glass jar. It contains a parakeet, whose life is being brought to a premature and unpleasant end by the extraction of air from the chamber. Light spills out of the painting, catching the faces of the onlookers in movement; you can’t quite see the source for it is obscured by what appears to be a brain in a jar of liquid. Two young men watch the experiment earnestly. A young couple to the left of the painting have little interest in the wretched bird. A man, an enthusiast, wild haired, wrapped in a red dressing gown and a shirt open at the neck, is pointing to the jar and declaiming to the watching boys. His right hand hovers above the brass mechanism and winding handle of the air pump, a precision instrument of its time, set in a heavy, carved, wooden frame. Two young girls are visibly upset by the suffering. One covers her eyes with her hand, while the other clutches her sister’s gown for support. Another man comforts the girls. He is speaking and pointing to the bird. You can imagine him saying: ‘Come now, this is science. Put away your childish sorrow and take heed of our remarkable demonstration.’ Another boy, his face a mixture of malice and sorrow is shutting up the birdcage hanging from the ceiling, while, to the far right of the picture an older man rests his chin on his walking stick and stares at the apparatus with an unfocused, pensive gaze. Stepping back from the painting one can see the trappings of wealth: the rich finery of the clothes, the polished wood furniture and expensive apparatus, the heavy fresco plasterwork of a doorway in the background. The moon shines pale through a large sash window. It is a country house spectacle. These details are hidden in the half-darkness, away from the extraordinary chiaroscuro Wright achieves with the lamplight.

Compare this to another of Wright’s masterpieces, the Alchemist in Search of the Philosopher’s Stone. Again, the canvas is lit by light emanating from a glass vessel and the light catches faces in movement. But the setting is utterly different. The light, much hotter and brighter than the gentle lamp of the country house, boils out of a glass vessel held on a tripod, its stem bound tightly into a metal pipe running into a peeling brickwork chimney. It illuminates a room that resembles a church with Gothic arches built with plain stone; in the background the moon shines this time through a mullioned Gothic window. A man kneels by the vessel. He is old, grey haired, with a thick long beard, dressed like a hermit. His gaze is directed at the ceiling, so that his face, illuminated from below appears in an attitude of prayer. He is surrounded by the junk of alchemy, pots, vases, scrolls and a globe. Behind him there is some kind of writing table and two surly faced boys are chatting and pointing at the kneeling man. The sole, incongruent trace of modernity is a clock shown clearly in the middle of the picture.

Wright may well have seen these paintings as reflections of the same activity, the advance of science and progress, literally illuminating and metaphorically enlightening. But his two very different visions of scientific activity not only record the birth of modern experimental science but also give us a metaphor that helps us understand the practice of finance. On the one hand we see the entrepreneur discovering prices through a solitary process of experimentation in the market, groping in the dark for the light of price efficiency; on the other the gentlemanly, public spectacle of experimentation with its accompanying materiality and sociality – instrumentation, expertise, and collective agreement about the outcome. To be crude, the first is an economic conception, the second a sociological one. And we can use this metaphor to help us answer a question that has been vexing us since the outset: what’s in a price, and why does it matter?

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. To build something – to make something better – you need to understand how it works. Sometimes that means taking it to pieces, and that’s exactly what we’ll be doing in this podcast. I’ll be asking: what makes financial markets work? What is in a price, and why does it matter? How did finance become so important? And who invented unicorns?

We’ve covered a lot of ground in these last eight episodes, so let’s recap and try and pull some of the threads together. We’ve seen how stock exchanges developed through a mixture of historical happenstance, technological and economic innovation and political change. Exchanges are the central hubs of financial markets, and in my phrasing a synecdoche for them too. We saw how the birth of Chicago as a centre for agricultural trade, a phenomenon driven by advances in transport and communications, gave rise to The Board of Trade. Founded in 1848, that swiftly developed a market in agricultural derivatives. It was only later, as a result of commercial rivalry, that the legality of derivatives was settled in the Supreme Court and regulation caught up with the new market. The telegraph and ticker machine not only transformed the reach of the exchange but also bought regular time to the market and made possible new kinds of opportunity for profit, or indeed loss. We saw how London’s exchange grew from a commercial opportunity created by the government’s need to borrow from citizens to wage wars and its decision to make those borrowings liquid by recirculating them through the early joint-stock companies, notably the Bank of England and the East India Company. The wealthier jobbers, as the traders were known, purchased a building to house the dealing and charged their peers for access. There’s the beginning of the venerable London Stock Exchange; we can understand a great deal about how markets are shaped if we see them as venues where those at the top are continually stamping on the heads of those at the bottom. We took a detour to explore what stock exchanges could be doing, following hapless Sixtus and his efforts to set up a brokerage funding small companies. We then explored the social glue that binds stock exchanges together, the rules and rituals of the pre-digital London Stock Exchange, and how this was torn apart by the innovations of the 1980s: a global shift in political-economic contract from collective economic responsibility to individual self-help; the rise of new kinds of financial alchemy that turned the likes of you and me into subjects of financial interest; and the process of digitisation that provided the infrastructure to support this extraordinary expansion in the scale and scope of financial exchanges. As the stories have developed we have begun to understand that none of this was planned. Even the intellectual advocates of free market theory, who may claim to have made a meaningful contribution to the evolution of markets, began life as fringe figures until they were swept along by tide of global political-economic change and technological advance.


Think of those paintings again. The alchemist, pursuing his solitary work in the lab, happening by accident on the magical luminescence of phosphorus – by boiling urine, apparently – is roughly how finance thinks it works. Heroic traders, those shouting young men, the stuff of Tom Wolfe or Michael Lewis, or the desk trader taking a massive loss and casually puking in a bin before turning back to the screen – these are solitary figures pitting their wits against the market’s noise in pursuit of that distant, perfect price. (The sick in the bin anecdote comes from leading sociologist Donald MacKenzie, and I should say as always that full references are in the transcript on the podcast website)[2]. What about the other one? What is going on here, at least beyond the obvious, that a parakeet is coming to a miserable end in the name of progress. At the centre of the painting is an experiment, a public demonstration in which the laws of nature are temporarily suspended to effect a particular outcome. The experiment is structured and predictable. We know what will happen to the bird, and a demonstration proves a certain theory. It is a piece of theatre, combining the very latest in technology and knowledge to demonstrate a fact. That’s the theory, anyway. The truth is messier. Though it seems rudimentary to us, the air pump was cutting-edge in the mid-18th century; these pumps misbehaved, and in reality the outcome was not as predictable as all that. Ask any experimental scientist about the day-to-day practicalities of working in the laboratory and you will hear stories of knocked benches and malfunctioning equipment. The complex instruments of contemporary big science have personalities all of their own, and whole careers can be spent tending them. Experimental science is a messy, prolonged process; if not a country house entertainment, it’s a theatre of kinds, a spectacle of proof that’s ratified among learned professors at conferences and in the pages of academic journals.[3]

So it is with finance. It’s collective activity, the preserve if not of gentlefolk, certainly the well-educated, affluent, the social elite. It’s chaotic. Not everyone agrees on the outcome, and the process of testing and experimentation flows on as the markets follow the sun around the globe. Financiers, like scientists, debate: they meet in luxury hotels – the 21st-century equivalent of the country house – to settle the arguments, developing new kinds of practice and new ways of making money.

We can push the comparison further. Sociologists of science have argued that scientific facts are assembled in networks of instrumentation, of practice, of social relationships and institutional hierarchies. If you ask what’s in a fact, they will answer, ‘all of these things’. Facts are not lying around, partially invisible, waiting to be discovered but are assembled laboriously through the efforts of scientific specialists; they are fragile, held in place by those same efforts mechanisms, and political inasmuch as there is a politics to the production of science, as there is any institutional activity. This is not to say that facts are any less factual. If we are aware of the laborious rigour that surrounds their production we will take them all the more seriously: opinions and facts are not the same thing, precisely because of the very great difficulties involved in assembling facts. Bruno Latour, another great sociologist of science, has long urged climate change scientists to show their instrumentation, to make clear the price they must pay to be scientists. But after a while facts become naturalised, settled, domesticated. They are taken for granted, and the arduous circumstances of their production left behind. Such a process is necessary if science is ever to move forward or we would be forever reinventing our most basic findings. Facts become, Latour’s words, “black boxed”, often in instruments that simply make these earlier findings routine and invisible. It is only when things go wrong that we reopen and re-examine the content of these boxes.[4]

—-cash register—-[5]

So it is with prices. The price of your pension portfolio or mortgage is an obdurately real affair, and to understand that prices are made is not to somehow lessen their status. But prices, like facts, are assembled through demonstration, instrumentation, sociality and expertise. What then is in a price? Everything: the wires, screens, the telegraph or tickertape, the social rituals that bind exchanges together, the modes of calculation, the most innovative practices and knowledge of market participants, market regulation and vigorous lobbying, global political-economic shifts. All these things are rendered down into a vast collective agreement as to what something is worth. Rendered down and held in place for a day, a year, or a microsecond, before a new settlement emerges, and with it a new price. And it’s important to recognise the socio-material configurations of prices because we can start to see how changes in those social material arrangements can have an effect on prices, and in doing that to tell a story that is more subtle than the linear tale of technological improvement beloved of the financial economist.

Take LIBOR, for example. That’s the London Interbank Offered Rate, a daily calculation of the basic cost of borrowing money. Donald MacKenzie, who has researched it in detail, believes that LIBOR is interesting because it is so thoroughly black boxed, so completely regarded as a basic natural fact of the financial universe.[6]

Banks lend each other money all the time. This ‘interbank market’ is conducted through broker intermediaries, who deal with the bank clients. These are ‘voice brokers’, connected to their clients and their counterparties through complicated intercoms called voice boxes. “A bank’s dealer who wishes to place or to receive an interbank deposit,” writes MacKenzie, “will use his or her voicebox to tell a broker, who will then do one of three things: use his or her voicebox to try and find a counterparty; shout out the order to his or her colleagues; or ask a board boy (as they are still called) to write the order on one of the large whiteboards that surround the broker’s desks”.[7] A network of screens supplies current buy and sell prices for debt, and dealers are skilled at inferring the likely cost of borrowing across a range of risk and risk tolerance. So that’s how the market works. How then is LIBOR calculated? Well, in a highly routinized daily fixing, the LIBOR office asks the bankers how much money costs. Once a day, by 11:10am, representatives of 16 selected banks phone an office in the Docklands, passing on their best estimate of how much it would cost to borrow money. Sometimes, says MacKenzie, they forget and the office calls them. Their suggestions are sorted in order, the top and bottom quartiles ignored, and the mean of the second and third quartiles is published at 11:45am as the British bankers Association LIBOR. The process is is all very rule of thumb but it is also, as MacKenzie points out, sociologically robust. The banks’ inputs are made public and subject to scrutiny, while excluding the top and bottom quartiles makes wildcard or overly aggressive suggestions redundant. It would take a concerted effort to distort LIBOR, although a series of revelations in 2012 suggested that exactly such a thing had taken place, leading to a regulatory overhaul of the system, hefty fines, the resignation of a global banking CEO and the conviction of one trader.

This simple calculation, routine and forgotten by 11.46am each morning, serves as the basis for a whole superstructure of additional financial transactions: according to Wikipedia, some $350 trillion of derivatives are indexed to the number. “The importance of the calculation,” writes MacKenzie, “is reflected in the arrangements if a terrorist incident or other event disrupt the office in which I witnessed it. Nearby, a similarly equipped office building is kept in constant readiness; dedicated lines have been laid into the homes of those responsible for the calculation; a permanently staffed backup site, over 250 km away, can also calculate LIBOR.” Although LIBOR is thoroughly black boxed, the circumstances of its production rendered invisible, those circumstances remain important enough to demand not one but two replacement facilities for the case of emergency.

LIBOR is a price, and it contains the state of all information about the demand and supply of global credit. Let’s think of it through the analogy provided by those pictures. It is talked about – and used – as if it had been discovered by experiment, a natural artefact surfaced by the curiosity of financial man. This is – metaphorically speaking – the alchemist kneeling before his boiling pot. And this view, I think, explains the outrage directed at the participants in the rigging scandal; a sense that some kind of epistemological wrong had been perpetrated, that the natural order of things had been interfered with. When MacKenzie explains its construction, however, we can see that the process is more like the public spectacle of the bird and the air pump. It draws in the material architectures of credit brokers with their voice boxes and whiteboards; the judgement of expert traders as to what they might be able to borrow and at what price; regular calculative practices kept clean by the daylight of transparency and the threat of reputational damage; and at the highest level, a sharp politics of inclusion and exclusion determining who is able to contribute to the fixing and who is not. It is a messy process, contested and unsettled. Rival standards come and go, scandals break out. It is also exclusive, secretive, and hidden: financial facts, like any others, remain the domain of those expert and qualified enough to deal with them. In recent years citizen participation in science has been very much in the agenda: perhaps we should have citizen finance too.


It seems that some prices are better than others. But how can we tell? I’d like to finish with a cautionary tale, to show the kind of things that happen when we forget to check the instrumentation properly. It shows something else about prices – how they act as pivots through which forces of politics and contestation might flow, from richer to poorer, better placed and better informed to less so, insider to outsider. The most outside of outsiders are, in the words of one character in Scorsese’s Wolf of Wall Street, ‘Schmucks, mostly. Schmucks and postmen. There’s always postmen’.

In the early 1980s the British public became aware of a stockbroker-dealer, with the reassuringly classy moniker Harvard Securities. Harvard was run by a celebrity stockbroker named Tom Wilmot, who became a household name in 1985 after publishing a bestselling introductory guide to the UK’s over the counter markets. The OTC markets, not dissimilar to those occupied by Jordan Belfort, the Wolf of Wall Street himself, were Harvard’s hunting ground. According to the book, Harvard acted in ‘dual-capacity’, dealing in what Wilmot happily described as ‘speculative share issues’. Harvard Securities not only sold stock to the newly propertied Sids of the mid 1980s but also made the market in those stocks, benefitting from whatever spreads it happened to charge. It was better informed, better capitalised, and better staffed than those who purchased its shares; yet Harvard itself was opaque, and the spectacle of public proof very much absent from its dealings.

The firm had been founded in 1973 by a Canadian named Mortie Glickman; Wilmot, who knew a dodgy name when he saw one, refers to him in the book as Mr M.J. Glickman. It later emerged that Mortie Glickman had what journalists call a ‘colourful background’. Working with a man named Irving Kott, he had set up a broker named Forget in Montréal. It made a living employing high-pressure telephone sales to push stocks in dodgy Canadian companies onto European investors; much of the work was done through a Frankfurt-based operation, also set up by Kott and Glickman. The recipe was simple and involved buying a stake in the firm at a very low price and selling it on to investors at an inflated one. Forget was suspended by the Quebec Securities Commission in March 1973 and promptly went bust. Eventually, the Canadian authorities prosecuted Kott – but not Glickman – for fraud. He was convicted of issuing a false prospectus for shares sold through the Frankfurt firm. In other words, the shares he sold had slipped from real (but worthless) to imaginary (and still worthless). He had crossed a legal line, not that this would have made much practical difference to anyone who bought stocks from Forget.

Wilmot worked with Glickman as directors of Harvard Securities from 1975 until the latter stepped down in 1985. We might speculate that he learned his tricks during that first decade. ‘Tom was the biggest rogue of the lot,’ says one old Exchange hand, ‘and while Tom was dealing instructions to his dealers were, ‘Don’t buy anything, you are only a seller’’. Of course, a market with no buyers would look suspiciously quiet. Indeed, it wouldn’t be a market at all. But the ingenious Wilmot had a solution to this. In his book, he boasts that Harvard securities was taking the lead in making information on the over-the-counter market more widely available, paying the Evening Standard and Daily Telegraph – among others – to carry lists of stock prices. These ‘prices’ were, allegedly, not actual prices resulting from stock trades, but indicative ‘basis prices’ made – made up – by his own office. ‘Just to convince people it was all right,’ says the jobber, ‘he would put out his list of stocks, not many of them, 20 or 30 and he would move them up 1p a day, down 1p a day. And then he would move them 2p a day…People thought that it was all right but in fact they had bought a load of rubbish.’

In the early days Harvard Securities sold lines of American stock that could not be disposed of at home due to the SEC rules, then moved in the late 1970s to promoting its own offerings. It was busy during the boom years of the 1980s and bought a succession of companies to the markets. Some of these, notably Hard Rock Cafe and Park Hall Leisure, moved on to the main markets and became household names. The press reported that Harvard gained 20,000 new investors through the BT flotation in 1984, and Harvard claimed to already have 45,000 names in his database by that time. In a perfect echo of Jordan Belfort’s tactics, inexperienced investors who had made safe gains on a reputable issue – whether government stock or a famous leisure name like Hard Rock Cafe – then became the targets of aggressive telephone sales that exploited goodwill from the initial successful dealings. At the peak of the boom, turnover reached £200 million.


Wilmot bought a salmon-pink turbocharged Bentley. His investors didn’t do so well. Many of the companies Harvard introduced simply went bust. Wilmot shrugged this off. ‘From the onset,’ he said, ‘we have told clients that for every 10 companies in which they invest, two or three would fail in business within a two-year to three-year period; three or four would perform reasonably well; while three or four should perform spectacularly.’ These are numbers that might appeal to angel investors, wealthy, sophisticated business folk who know exactly what they are doing, the kind of odds quoted by Sixtus. The investors Wilmot targeted were not those who could stand risks like this – and the real risks turned out to be far, far higher.

Wilmot’s book was published in 1985, and made him into a minor celebrity among the investing public. He was a larger-than-life character. A big man, some 17 stone by accounts, he ran through staff quickly. At one point he was changing secretaries once a week: a colleague, quoted in The Times, remarked acidly that Wilmot ‘likes them to be pretty, to be a hostess and to do instantaneous work – it’s a difficult job’. He moved into an eight bedroom house, a 1930s affair designed by Bauhaus architect Walter Gropius. And anyone who had seen Wilmot arriving at the offices in his spanking new pink limousine might have called the height of the boom, but once again he had an answer: the man who always told investors to be wary of a company if its chairman drove a Rolls simply pointed out that his machine was a Bentley.

In 1984 Harvard Securities raised £2.1 million through a public offering, valuing the company at nearly £5 million, and listing its shares on its own market. The money was, he claimed, intended to develop the firm’s market-making activities and create a war chest for investing in early-stage firms that were not quite ready for the over-the-counter but with promising prospects. Forget’s business model suggested that, in practice, the cash would be used for buying ‘founder’ shares at an early stage that could then be resold to investors at a huge profit. The offer had the side-effect of making Tom Wilmot, who owned 37% of the firm, a paper millionaire – a very secure one too, as his salesmen controlled the price of that paper.

But wealth isn’t everything. I’ve made clear throughout these episodes that finance is a club, a gated community, and Wilmot wanted to be on the inside. Perhaps he wanted respectability, or perhaps he cynically understood that the validity of his prices depended greatly upon his membership of class of experts allowed to construct such things. It doesn’t really matter.

In 1986, Harvard announced its intention to apply for Stock Exchange membership. Soon, however, the over-the-counter practitioners committee, of which Harvard Securities was a prominent member, suggested that the licensed dealers would do better to launch their own regulated exchange. ‘It is not’, said Wilmot, ‘in the interests of the industry for the Stock Exchange to control the OTC’. These plans seemed to come to nothing. Then, in April 1987, Mortie Glickman sold the remainder of his stake to David Wickins, a reputable businessman and founder of British Car Auction Group, in return for a £1 million investment. This deal fuelled speculation that Wilmot would step back from the company and that Wickins would become the new chairman; Wickins hoped to end the practice of cold calling customers and instead re-brand the firm as a specialist corporate financier focused on growing companies. But these talks broke down in August 1987. At the same time, the London Stock Exchange refused to accept Harvard Securities as a member and effectively blackballed Wilmot. Shut out by the financial establishment, Wilmot tried and failed to find a buyer for his own stake in the firm.

—– Thunder —–[8]

In the last few episodes I’ve discussed the changes that overtook finance throughout the 1980s. They took place, of course, against a backdrop of a roaring bull market with stock prices heading steadily towards the sky. But markets can go down as well as up, and in October 1987 they did just that. The warning signs came from New York. Shares began to slide on Wednesday 14 October. On Thursday the slippage worsened. Overpriced shares were knocked by fears of interest rate increases and it is widely thought that computers programmed to trade at certain levels – for example, if the market falls by a certain amount – exacerbated the fall by causing a self-reinforcing feedback loop of selling and collapsing prices.

When Wall Street sneezes, the saying goes, the rest of the world catches a cold, and one might have expected panic in London on Friday. But nothing happened. During Thursday night, while New York’s traders had been piling on the sell orders, the south-east of England had been hit by the most savage storm in a century. Eighteen people died as walls collapsed and trees were uprooted, falling through buildings and onto cars. The hurricane shredded power lines and blocked railways, wrecking the capital’s infrastructure. London’s financial markets never opened that Friday morning. Many could not get to work, and those who did found power cuts and darkened screens. The Stock Exchange did manage to get its screens running by lunchtime, showing a rudimentary service, but there was hardly anyone in the office to deal. Those that did were busy short-selling insurance companies as quickly as they could, or picking up stock in the young and hungry do-it-yourself retailer B&Q which announced that sales of chainsaws and wheelbarrows were healthy and that its stores would be open all weekend. Those who did make it into the office left as soon as they could, and the half-hearted trading session finished at roughly two o’clock in the afternoon, just before the American markets opened.

So London, for once, was not paying much attention to the goings-on at Wall Street. On the other side of the Atlantic, things were not good at all. Friday 16 October was a bleak day for the American stock exchange: three hundred and forty-three million shares changed hands, more volume than any day previously, and the Dow Jones index fell by 4.6%. Traders were worried about interest rates and the long-term economic output; more and more, they were just plain worried, for this had been the worst week that Wall Street had ever seen. Then came the weekend, a queasy quiet before Monday’s market opening.

London opened before New York. Traders, shaken by Friday’s events, both meteorological and financial, tried to pre-empt heavy selling by marking prices down even before the market had opened. To no avail. Phones rang and rang, traders panicked and computer screens struggled. The London Stock Exchange was obliged to post a ‘fast market notice’ on its price screens to show that screen prices might be wildly different from those actually available from a broker; the fundamental basis of screen-based dealing, that the screen’s prices would be honoured, had been smashed by the sheer volume of sales. During the course of the day London lost twelve percent of its value, roughly fifty billion pounds worth of assets evaporating in a few hours. Newspapers used the words bloodbath, panic, meltdown, and even Armageddon. Black Monday, 19 October 1987, smashed the record for the previous largest single-day fall. Panic spread. The Australian Stock Exchange lost twenty percent of its value in the first few minutes of trading and the Tokyo exchange fell 11 percent. It was a catastrophic day. It wasn’t just the professional traders who were burned, but also the legions of newly-minted private investors. In Oxford Street, the Debenhams department store contained a small investors’ boutique run by the fledgling private client broker The Share Centre. The Guardian newspaper records a crowd of individuals seeking to rescue some value from their ruined portfolios, and a total inability to transact in the market: ‘“Just do the deals,” said Share Centre manager, Jackie Mitchell, a former filing clerk. “Can’t do the bloody deals, and they won’t answer the phone,” came the voice down the intercom.’[9]

There’s something else in prices: emotion. Sometimes greed and sometimes fear. There is a huge literature of behavioural finance exploring such things, but I don’t want to spend much time on it partly because others have, and partly because I think it misses the real story.[10] Stock markets are remarkably robust, anchored in all these years of history and practice, all these organisational architectures. Black Monday and the weeks following it did not destroy the markets; John Jenkins and his crew may have lost £10 million on Monday as they struggled with computers that couldn’t keep up with changing prices (the material again!) but they were trading again on Tuesday and Wednesday, nimble, surefooted, making money. Prices keep on being made, even if those making them don’t care for the direction of travel.

Harvard Securities, on the other hand, was not sociologically robust. Investors suddenly began asking for their money back, and when it became clear that the broker who had sold shares was unwilling to buy them again they wrote to the DTI and complained. Harvard laid off staff and in February 1988 reported a loss of £2.5 million for the first quarter. Its auditors qualified the accounts: it wasn’t clear, with the Financial Services Act looming, whether the business could continue in any form if it couldn’t secure regulatory oversight. In the summer of 1987, a formal motion was raised in the House of Commons by the Labour MP for Workington, one Dale Campbell-Saviours, advising investors to pull out of Harvard Securities. Campbell-Saviours was emerging as an unlikely champion of those investors who had been sold stock by the firm. He prodded the DTI to investigate and asked the shadow secretary for industry – a little known politician named Tony Blair – to take up the cause. Wilmot dismissed these allegations, saying that investors who had made a profit did not write to the DTI. Though there was an embarrassment of riches as far as potential misdemeanour was concerned, investigators focused on a film distributor called VTC; the dealers had sold on £132,000 of stock by promising buyers exciting figures and a significant increase in profitability – while VTC itself was supplying accounts predicting a £1.1 million loss. Campbell-Saviours also noted to the House that Harvard’s salesmen had been instructed to avoid repurchasing stock in distressed companies. It later emerged that dealers earned double commission for selling over-the-counter stocks to investors but had their commission docked should they repurchase any from a client who wish to sell.

In September 1988 Harvard Securities shut its doors, and an estimated £20 million of investors’ money disappeared.  It had failed to gain recognition from any of the five potential regulators. Approximately 3000 investors had written to the DTI; many had been sold Harvard’s own stock and lost their money here too as the firm finished with final year losses of £7 million. Those who did try to liquidate their holdings its final few days found that the market-maker was unwilling to repurchase stock; Harvard told investors that it had moved to trading on a matched basis and of course there were no buyers to be seen.

—–market traders—–[11]

Wilmot moved on. You can’t keep a good man down, and City gossip columns gleefully followed the progress of his new firm, a sausage company. The pink Bentley doubled as the firm’s van, sausages heaped on the back seat and a refrigerator jammed in the boot. When deliveries were too far away Wilmot delegated driving to his chauffeur, who also seemed to act as personal assistant, fielding calls from journalists. Perhaps this doubling up was a sign of straightened times. If so, it was the only one and Wilmot was soon abroad and embroiled in a lengthy dispute with the taxman. Wilmot’s son Christopher even joined the sausage business, leaving one commentator to speculate that he might learn some bad habits from his father. The commentator showed some prescience: In August 2011 Wilmot and his two sons were jailed for a total of 19 years for operating a ‘boiler room’ scam on an enormous scale.[12] This enterprise was more of the same as far as Wilmot’s prior history was concerned, just bigger. The scammers controlled 16 offices stretching across Europe – Christopher ran the IT operation from Slovakia, for example – and during five years of operation they relieved members of the public of some £27 million, £14 million of which was never seen again.

So what can we say about all this? Prices matter, and some are obviously better than others. But they’re not better because they are more right, a more accurate reflection of some externally existing financial reality. They are better because they are better made, more carefully crafted, because the artisan who shapes them cares about their production. Harvard Securities shows what happens when we take our eye of this process. It’s a crass example, but when we come to the global credit crisis we will find the same problem underpinned it. Those who made prices gave up caring whether they were good or bad and we citizen scientists failed to apprehend this. The Queen famously asked the economists why no one saw the crash coming. They blustered about probabilities and distributions, but the real answer is somewhat different: they were simply not sociological enough.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe or email me on philiproscoe@outlook.com. I’ve come to the end of this section of the podcast and I’ve said pretty much everything I can about the materials of the market. I’ll be taking a break over the Summer. Who knew podcasting would be such hard work? But join me again in September, when we’ll continue in our quest to find out how to build a stock exchange.


[1] Sound recording from freesound.org https://freesound.org/people/Robinhood76/sounds/95759/

[2] Donald MacKenzie and Juan Pablo Pardo-Guerra, “Insurgent Capitalism: Island, Bricolage and the Re-Making of Finance,” Economy and Society 43, no. 2 (2014).

[3] There is a huge literature here, but see, for example Karin Knorr Cetina, Epistemic Cultures (Cambridge, Massachusetts: Harvard University Press, 1999); Bruno Latour, Pandora’s Hope (Cambridge, Massachusetts: Harvard University Press, 1999); ———, Facing Gaia: Eight Lectures on the New Climatic Regime (John Wiley & Sons, 2017); Andrew Pickering, ed. Science as Practice and Culture (Chicago: University of Chicago Press, 1992).

[4] Bruno Latour, Reassembling the Social: An Introduction to Actor-Network-Theory (New Edition), Clarendon Lectures in Management Studies (Oxford: Oxford University Press, 2007).

[5] Sound recording from freesound.org https://freesound.org/people/kiddpark/sounds/201159/

[6] The following relies on MacKenzie’s account, see especially Material Markets: How Economic Agents Are Constructed (Oxford: Oxford University Press, 2009).

[7] Ibid., 80.

[8] Sound recording from freesound.org https://freesound.org/people/BlueDelta/sounds/446753/

[9] The Guardian, October 21, 1987. ‘Darkening clouds as the little yuppies go to market’, Edward Vulliamy

[10] An excellent introduction is George A Akerlov and RJ Shiller, Animal Spirits (Princeton and Oxford: Princeton University Press, 2009).

[11] Sound recording from freesond.org https://freesound.org/people/deleted_user_1116756/sounds/74460/

[12] A boiler room is simply an operation pressure selling worthless or imaginary stock to private investors, and for some reason they are often based in southern Spain.