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.]
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. It was much easier to get onto than the Official List and was perfectly timed for the mid-eighties bull market. 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’. 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).
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.’
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.
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 firstname.lastname@example.org. 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/
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 Posner, The Origins of Europe’s New Stock Markets, 66.
 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).
 Buckland and Davis, The Unlisted Securities Market.
 You’ll find my narrative history of these markets, with comprehensive sources, at https://research-repository.st-andrews.ac.uk/handle/10023/11688
 Posner, The Origins of Europe’s New Stock Markets, 66.
 Cisco Newsletter, February 1993, p.8; April 1993, p.5-16.