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

Transcription

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

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

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

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

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

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

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

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

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