Monthly Archives: October 2020

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, 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

Cash register


Cork popping

Champagne pouring



[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

[6] See

[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.


[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.