Some say regional stock exchanges could help small businesses access investors
By Andy McFarlane
With cash-starved businesses struggling to survive, some politicians are championing regional stock exchanges as a source of vital investment.
When 70 members of Liverpool's business community gathered for their latest breakfast event, many were feeling let down by financial institutions.
So it may seem surprising that when guest speaker, Labour MP Phil Woolas, raised the idea of a local stock exchange, it was met with a murmur of approval.
The minister for north-west England is not the only politician backing a return to regional exchanges, with Liberal Democrats seeing them as a way of plugging the "equity gap".
Frank McKenna, who hosted the event as chairman of the Downtown Liverpool business club, says the recession - and its causes - left many among his 300-strong membership eyeing financial institutions with "a degree of scepticism".
"[A regional exchange] may provide an opportunity to restore some confidence, perhaps offer more transparency and a focal point for investment activity."
It may seem a novel idea, but in 1914 Britain had no fewer than 22 such institutions, including Bristol, Halifax, Leeds, Cardiff and Sheffield.
Eleven remained open until the 1970s, when they amalgamated with the London Stock Exchange. Liverpool's carried out limited functions as recently as 1991.
It is not the first push to reopen regional exchanges. Two years ago, an internet-based index - Investbx - was set up in the West Midlands.
It caught the eye of politicians in Wales, where Professor Robert Huggins has been canvassing firms about the idea.
Prof Huggins, who leads the Centre for International Competitiveness at the University of Wales Institute, Cardiff, will soon be reporting to the Welsh Assembly.
"If Wales is to be a nation, why not have a national stock exchange?" he asks.
But there is more than national sentiment behind the idea. Fewer than 20 Welsh companies use the London Stock Exchange.
"A lot of it is down to cultural barriers," says Prof Huggins.
"There's not a propensity to think about selling stock. Welsh entrepreneurs don't want to use something in London that's unknown to them."
Prof Huggins believes regional indexes - whether as branches of national exchanges or set up independently - could change that, providing firms with equity from local venture capitalists.
"It's not a substitute for funding from banks and it's not a solution to the current crisis, but it could give firms long-term capital to develop," he adds.
David Grove knows exactly what he means.
For David Grove, the West Midlands exchange was a great stepping-stone
He chairs engineering supplier Key Technologies, which raised £1.8m at a cost of about £200,000 when it listed on Investbx in November 2008.
"It was a very cost-effective way of raising additional finance," he says.
"It's too small a company to go on the public markets and if we go onto the Alternative Investment Market [for growing companies], you still have to deal with financial advisers. It can end up costing £400,000."
Investbx "connects" firms needing funding of between £500,000 and £2m with its database of investors.
There is little liquidity in the shares. Occasional trades are carried out by auction, when buyers - who have registered online how many shares they want at a price they are prepared to pay - are matched to sellers.
Key Technologies' price has risen about 20p to £2 over the last year and Mr Grove says the regional exchange has been a valuable stepping-stone.
"It's helped getting the company's name known in the wider investment community, which can be difficult."
Crucially, Investbx was set up with the help of £3m in public funding from regional development agency Advantage West Midlands.
However, just three firms are listed on the local platform and many remain sceptical that such an institution could survive without state aid.
Margaret Wood, chairman of the Institute of Directors in Yorkshire and the Humber, put it bluntly: "If there was a requirement for a regional stock exchange, then the market would already have driven its creation."
Veteran stock broker and former Conservative Lord Mayor of Leeds, Keith Loudon of Redmayne Bentley, is of similar mind.
He says that while regional markets could connect businesses to investors, they would not provide the instant trading ability that modern markets demand.
"Sadly it's just not practical to have a stock exchange [in Leeds], for the basic reason there isn't a flow of trade. You need buyers and sellers on a regular basis, not just every three months."
However, Liberal Democrat business spokesman John Thurso says that is missing the point.
"You can do a great deal of work remotely. You don't need an actual dealing floor to create a market in Manchester of Leeds."
Mr Thurso is preparing a report for party leader Nick Clegg, who recently told business leaders regional exchanges could aid Britain's economic recovery.
Having spent 20 years managing hotel chains - then experienced the frustration of trying to raise funds as the sole owner of small hotels - Mr Thurso understands the problems small businesses face.
He believes an over-reliance on debt left many businesses vulnerable to the downturn, but that no mechanisms were in place to allow them to reach equity.
Mr Thurso believes regional exchanges could do that - but would need a looser regulatory system which was "appropriate for the level of risk".
"You wouldn't expect a little old lady to put her life savings on to a regional stock market," he says.
"It would have to operate on the basis of informed investors."
Chris Fletcher, of Greater Manchester Chamber of Commerce, says a "fear factor" and lack of understanding might deter some of its members.
"They could probably see the advantages in raising funds, but might shy away from relinquishing control," he added.
For his opposite number in Yorkshire and the Humber, Nick Pontone, the priority remains restoring access to bank lending.
But he adds: "Nobody should be taking any ideas off the table."