Unprecedented time of upheaval facing companies, warns LSE head

Xavier Rolet, chief executive of the LSE, said uncertainty over new legislation was creating problems for firms but said this region's Aim-listed companies are well-placed to take advantage from Britain's fledgling recovery.

Mr Rolet also said job creation would come from mid-caps, rather than blue-chip companies or the private sector.

He told the Yorkshire Post: "We are facing times of unprecedented regulatory upheaval. There is almost no segment within financial services regulation that has been left untouched, whether you look at the US, new regulation coming out of Europe as well as our own regulatory architecture here in the UK, which is the object of a consultation, with a view to making significant changes.

"Business is facing a lot of uncertainty from a legal-regulatory standpoint... We need to ensure that as soon as possible we establish a known, predictable framework."

Mr Rolet, who was in Leeds to give a lecture as part of stockbroker Redmayne Bentley Investment Month, said small and medium-sized enterprises (SMEs) should play a major part in any private sector-led economic recovery and said it was important to listen to the business community.

"The UK economy is emerging from recession, actually starting to grow at a rate slightly above the European average. It is about pursuing and strengthening that growth. Growth is nothing if it doesn't provide jobs.

"There are only three sectors that can create jobs – the public sector, blue chips and small and mid-caps. The public sector is unlikely, not just in the UK but almost anywhere in the Western World, to be a net new creator of jobs.

"It is incumbent upon the SME sector – and this is an important macro-economic point – net new job growth can only come out of the small and mid-cap sector. It's not going to come out of any other areas of the economy so we need to look at what we can do to facilitate employment, investment and (particularly) for SMEs."

Mr Rolet said blue-chips across Europe had struggled to create jobs, even in the boom years of 2005, 2006 and 2007.

Now he wants SMEs to have easier access to capital and to see governments and regulators cut the burden of red tape.

"SMEs find it harder to recruit capital to grow to the next stage and secondly, they are often subjected to the same level of regulatory scrutiny and disclosure as the blue-chips which means that, from their standpoint, the costs are too high."

Mr Rolet highlighted Yorkshire's impact on the Alternative Investment Market (AIM) – members include Bradford acne specialist Syntopix Group and Sheffield gas-cylinder group Pressure Technologies – and said he would like to see a loosening of the restrictions on venture capital trusts, to make it easier for them to invest in early stage listed companies.

"Yorkshire is a financial centre in its own right and a large one – one of the top financial centres in the UK but also has a vibrant business community including entrepreneurs, a number of which are listed on our markets.

"We have in the UK our home-grown financial transaction tax, stamp duty, which is a substantial factor in the reduction of turnover velocity and the reduction of liquidity. UK equity turnover velocity is about half of the European average and one-fifth of the US average in great part due to the higher frictional costs that are imposed on the trading of securities linked to the imposition of a stamp duty. We think that partial exemptions for SMEs up to a certain size would be extremely productive in helping grow secondary liquidiites.

"We need to make sure we rebalance the tax system in the UK, which heavily favours debt – contract debt where you get a tax deduction... Investors and individuals resort to debt versus equity and guess what? Every time we have a big financial crisis it's excessive debt that is the reason – so let's look at rebalancing the tax system to favour equity."

Head of a key player in the financial world

As chief executive of the London Stock Exchange Group, Frenchman Xavier Rolet is responsible for the LSE, Borsa Italiana, Turquoise, a pan-European multilateral trading facility (MTF), where investors can trade in more than 2,000 European and US-listed securities.

He succeeded Dame Clara Furse, a legendary figure and the first female head of the LSE.

She fought off several hostile takeover bids for the exchange.

Mr Rolet, who was chief executive of Lehman Brothers in France between July 2007 and January last year, said the attraction of Indian, Chinese and Russian investors showed the London index was one of the leading platforms in the world.

Asked about the idea of creating regional stock exchanges, which the Liberal Democrats have suggested could be restored, he said: "The concept is not unreasonable at all... but the flip side is that over the last 15 years there has been a strong tend towards concentration of liquidity....

"The idea makes some sense but we question the practical aspects of its implementation."