Cable's push to revive local stock markets fails to impress

Last week, Business Secretary Vince Cable said he believed that a wave of new regional stock markets would help firms with a turnover of about 10m to attract investors.

Mr Cable said he hoped the revival of regional stock exchanges would encourage local investors – or business angels – to invest in small businesses in their region.

In the early 20th century, many cities had their own stock exchanges or bourses, including Leeds and Halifax. The last 11 provincial bourses became part of the London Stock Exchange in 1973.

A document – Financing a private sector recovery – published by the Department for Business Innovation & Skills, said: "Some commentators have proposed regional stock exchanges to help develop regionally-focused sources of business finance.

"Such an approach might, however, fragment liquidity and narrow the pool of investors available to each SME (small and medium-sized enterprise).

"The Government is interested in views on regional stock exchanges and how these could be made to work successfully, overcoming liquidity issues."

Barbara Greaves, the general manager of the Harrogate-based Yorkshire Association of Business Angels, said: "It would appear that the Government is intent on going backwards and re-inventing the wheel.

"The business world has moved on to a global market with instant communications.

"If cost is the issue, the AIM (Alternative Investment Market) market offers a lower-cost entry level and with less regulation.

"Members of the Yorkshire Association of Business Angels have mainly gained their wealth through a trade sale of their business and many will exit from their investments that way.

"As part of their investment strategy they may wish to hold shares in quoted companies and if they prefer to choose companies based in their region their local stockbroker will be able to action that deal instantly. I believe there is no need for a regional stock exchange."

Margaret Wood, the Yorkshire and Humber regional chairman for the Institute of Directors, said the stock exchanges would require extra Government spending, at a time when public sector cuts were being made.

She added: "The IoD would start with the following question: If demand exists why hasn't the market provided it?"

Ms Wood highlighted the case of InvestBX, an online exchange based in Birmingham that specialises in the shares of small local companies. It was founded in 2007 and has just three listed businesses.

She added: "It would seem that a rough cost of 100,000 per regional stock exchange per year is assumed...if each regional stock exchange was to deliver three deals a year, this would cost the taxpayer 33,000 per placing. While we would expect the placings to increase over time, this seems a very expensive ratio of cost to placings at the outset."

Howard Kew, the chief executive of Financial Leeds added: "The risk of having a regional stock exchange is that it would be difficult to attract institutional investors due to the lack of liquidity. Any buyers that you could attract would know that they might not have any exit.

"We recognize the need to attract equity type funding to the region and, while the AIM market can already do that for companies that have reached the appropriate stage, we need to look for other ways to bring investors and opportunities together."

Stockbroker Keith Loudon, of Leeds-based Redmayne Bentley, who worked on the old Leeds stock exchange, said: "Nobody wants to advance the region more than I do, but I don't believe a regional stock exchange is the answer.

"However, a place where occasionally buyers and sellers were brought together could be feasible. "The old (Leeds) stock exchange was a place where senior partners met at 11am and 3pm. Towards the end of its life, the amount of business that was done there was minuscule."

RDA SUPPORTED ONLINE EXCHANGE

An online regional stock exchange, InvestBX, was set up in 2007 in Birmingham, with support from the regional development agency Advantage West Midlands.

Three firms have registered with InvestBX and two have raised equity.

An Advantage West Midlands spokesman said InvestBX had been launched at a "particularly difficult time".

Alan Kitching, a consultant at Charles Stanley in Leeds, who remembers the old Leeds stock exchange, said regional stock exchanges were a lovely idea in principle, but in practice they would be totally unworkable.

He added: "For example, you're not going to get the order flow. There's no economic reason for anybody to get involved in it. It's a non-runner."