Monthly Archives: April 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.

Transcription

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.