Press releases 2000
7 October 2000
APCIMS CONFERENCE - DON CRUICKSHANK'S SPEECH
Attached is the text of a speech given by Don Cruickshank, chairman of London Stock Exchange plc, to the annual conference of the Association of Private Client Investment Managers and Stockbrokers (APCIMS) at the Conrad International Hotel, Brussels, at 10.15 a.m. on Saturday 7 October.
Key themes from the speech:
Accountability - a new consultation structure - the Exchange Markets Group - chaired by Don Cruickshank, including representatives from the whole market and supported by a number of new consultative groups with a more specific focus on aspects of the market.
Segmentation - a new market focus recognising the differing needs of users by setting up executive teams within the Exchange in order that focus can be segmented to meet the separate needs of the domestic and retail market and the wholesale and international markets.
Internationalisation - strengthening our international position by building on the Exchange's strong international base, creating a European Growth Market based on techMARK and repositioning techMARK and AIM as broad international markets.
Inefficiencies in the market - dealing with remaining inefficiencies in the UK market - specifically stamp duty, dematerialisation and central counterparty.
Schroder Salomon Smith Barney, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting for London Stock Exchange plc and no one else in connection with the offer by OM and will not be responsible to anyone other than London Stock Exchange plc for providing the protections afforded to its customers or for providing advice in relation to the offer by OM. Schroder Salomon Smith Barney has approved this press release for the purposes of Section 57 of the Financial Services Act 1986.
SPEECH TO THE APCIMS CONFERENCE
By Don Cruickshank
Chairman, London Stock Exchange plc
7 OCTOBER 2000
I'm very pleased to have the chance to speak - and to take questions - at your annual conference. I see it as very important for me to be visible to customers; to listen - seriously - to customers; and to act in the best interests of customers.
That means bringing forward strategies and proposals that have your support and meet your needs. What I will not do today is to set out a complete strategy for our future. It is simply not consistent with the desire that you all have for full consultation on such a strategy and secondly the need to have a well thought through strategy. What I hope I can do today is to give you some flavour of the strategic direction and the approach we will adopt in developing that detailed business strategy.
Reality for me is that you and our other customers may, on any one issue, have differing requirements and different views of the future. But I think it's too easy to dwell on this divergence of views based on the very differing needs of a diverse marketplace. And dangerous too. For it is that very diversity - represented by the total community of the Exchange - that provides the underlying strength that gives confidence to users of our markets, who, incidentally, themselves range from small private investors to, literally, some of the biggest investment funds in the world. And in a market such as ours, confidence is all important. Users want to be sure that prices are reliable; that supervision practice is fair; that costs are fairly spread. In short, the sort of place they want to do business. I'm very firmly of the view that the Exchange has an absolute obligation to ensure that it provides efficient markets for all its users: whether domestic or international; whether wholesale or retail.
I hardly need mention that the last few weeks have not been easy. Indeed, it has been drummed into me over the summer that for some time, a long time, you, as members of APCIMS, have had concerns that you feel the Exchange has not properly addressed. Some of you took the opportunity of our AGM to voice these concerns. Let me say this. We hear you. We take the message very seriously. And in a minute I'll talk about how we, together, can set about addressing your concerns. But I hope you will agree that whatever the issues of the past - and I apologise for those times when we got it wrong - we must now move on, constructively, building on the great strengths of the London market. We must ensure that the difficulties of the past neither cloud our underlying strength nor undermine our strategy for the future.
There are at the moment three streams of work for the management team at the Exchange; seeing off the OM Gruppen bid: building the business; and planning the future.
Firstly, we must see off the bid from OM. That is focussed on the next few weeks. You will have seen our two responses to their offer, which the Board believes undervalues the business and provides nothing new for customers.
Without going through the details now, I can confirm my view that it is a poor deal for shareholders and customers alike. Many of you here today fall into both categories. For you, OM's proposed deal would be double trouble.
Secondly, building the business: get the governance and management right: behave and act commercially: make the rhetoric of customer service real. Some of what this means in practice I'll touch on today. More will follow.
And thirdly, what of the future? We are a strong company, building on a fine track record. We don't have to do deals. We may at some future time wish to do so. But we don't have to. Our strategy is to develop an even stronger business that will provide value to our shareholders and will meet the needs of our customers. That will strengthen our hand in any future industry rationalisation and in seeking the right partners in the future.
But today, I want to focus on you as customers.
Now is the time for us to listen; to listen to our customers and to listen to what you want as the next stage of development for your market.
We've spent a lot of the last two years pursuing a strategy based on the need to create a pan-European market - primarily for wholesale trading, although also to support retail trading. We pursued that because the general view here in the UK and in the EU, and in the US was that the creation of a single market would require an integrated pan-European Exchange structure.
We heard from many of our customers that liquidity is sticky - sticky in the sense that it would be extremely difficult to shift it from a single Exchange - especially an Exchange that already offers efficient cost effective trading.
The result of those two hypotheses - that a pan-European Market was needed, and that liquidity would stick to the national Exchange - led us to believe that the only way that we could create a pan-European market was to work with other Exchanges within Europe, using the goodwill of those Exchanges and their members to bring together the broader European market.
In order to get that goodwill some compromise was inevitable. The particular compromises we reached were designed to allow the structure of our markets to be split between different regulatory regimes, but ensure that those regulatory regimes operated to a common standard.
In our minds, there was never any question that the standards could ever fall below those with which you and others were familiar - particularly on transparency issues and on listing arrangements. So, as it became clear that we were unable to make sufficient progress on ensuring that UK standards and structures would prevail, we were obliged to withdraw the merger proposal. There is a question, therefore, as to whether you would want to see this organisation participate in any restructuring that did not have clearly at its core standards equivalent to UK regulation. We have to explore this in some detail in the debate we are having on strategy with you and other market users.
But it also means that we didn't listen carefully enough. Oh, we could claim that the obstacles we faced, especially on the regulatory front, were more serious than expected. Or that we didn't orchestrate changes in clearing and settlement well enough. All that's true. But I think the key lessons are that you want: an Exchange that is accountable to its shareholders and customers; an Exchange that allows effective input to its decision making; and an Exchange that operates under the high standards of UK regulation.
So it is with these lessons firmly in mind that I want to address today accountability to all our customers, the segmentation of our market, the internationalisation of our market, and dealing with structural inefficiencies in our market.
Let me start with accountability. Having pursued a strategy that, I was told, was broadly demanded by many of our market users, it's become crystal clear to me that the Exchange's strategy needs the support of all our customers. And to reinforce that, note that firms representing over 80% by trading value own just 17% of the Exchange's shares. Hence the stress on accountability to you as customers. We can only achieve this through hard work. Warm words will not do.
This starts with the creation of the new consultation structure which we are putting in place. It'll have at its core an Exchange Markets Group, which is directly in touch with the Board. I intend to chair this group. I intend to ensure that the representation on, and the contribution from, this group is broadly drawn from the market as a whole - retail brokers, investment banks, corporate advisers, investing institutions and other key groups that make up the market as a whole.
This group will talk directly to the Board. It will provide its own independent advice to the Board. And where necessary, we'll ensure that it has the resources to conduct its own research, independent of the Exchange.
In addition, in order to ensure our ability to deal with the complex and important issues that we face, this group will be supported by a number of new consultative groups which have a more specific focus on aspects of the market.
These will include the retail broking segment of the market; corporate and advisory issues for AIM, techMARK and the majority of our main market; and institutional investors and issues related to corporate governance.
It's important for us that this new structure is successful, is listened to and is able to provide the right level of input in helping your Board make the right decisions.
As I stressed, my first theme is accountability. I hope that this structure, together with my personal commitment to you that we will listen and be accountable, will together ensure that our strategies are in line with our customers' needs.
My second theme today is segmentation - a rather grand word for thinking about our customers and market in finer detail. It is clear that one of the problems in delivering any strategy is the different interests of customers seeking a broader wholesale European market and customers seeking better, more cost effective services to support domestic and retail markets. In trying to provide one solution for all we have not been able to meet valid, specific needs.
We must address the fact that SETS, our automated trading system, does not meet the needs of the retail community. Although SETS has helped to drive cost out of the industry and has reduced spreads, we know - because you tell us - that you don't like it and you don't use it because it doesn't match your own and your customers' needs. I am therefore setting up new executive teams within the Exchange so that we can segment our focus, our systems and service development, to meet the quite separate needs of the domestic and retail market and the wholesale and international markets.
As regards management of these initiatives, I have asked Chris Broad, one of our very best people, and a member of our Executive Committee, to take specific responsibility for ensuring the delivery of an efficient service to support retail trading. He is charged with delivering to you in the key areas that I know you wish to see. This will include how we bring forward a service that both provides additional value to you and dovetails with the current RSP structures.
It will also include an approach to improve the efficiency of our market overall by dealing with some of the infrastructural questions such as dematerialisation, settlement cycles and stamp duty, and thirdly Chris will ensure that you feel it's a welcome back to your Exchange. I will personally ensure that Chris has adequate resources - both people and money to deliver this.
The flexibility of our technology means that we have the necessary infrastructure to increase our support for retail business. We have a number of proposals to meet the needs of the retail market that we would now like to discuss with you in more detail and in the next few weeks we will be discussing with you exactly how to move forward.
Let me also say that one of Chris's personal objectives will be to bring a UK retail perspective to all the Exchange's developments and plans. We must avoid any unintended adverse effects from changes designed to serve other customer groups. The central counterparty proposals are a good example.
In summary, segmentation, my second theme, is about recognising that the needs of the wholesale and the global market can be met while meeting the needs of the retail and domestic market. We will marshall our resources to ensure that we are able to provide adequate focus to those differing needs. We will not, as I suspect has happened in the past, see the needs of the UK retail market relegated to a second priority.
I know from discussions that I have had with several of you in recent weeks that you also have concerns about arrangements for smaller companies. I cannot stress too strongly the importance that we attach to the proactive promotion and development of techMARK and AIM. Last year, AIM out-performed all other key indices and the number of companies on the market continues to rise. Since its launch last year, techMARK, too, has been a great success with the number of companies rising from 180 to 250.
We shall continue to develop specialised market segments, adding to techMARK and extraMARK - our new market for Exchange Traded Funds - and again, we look forward to discussing with you how best we can ensure any such market segments are developed to meet the needs of yourselves and your clients.
My third theme is the internationalisation of our services. We already have the most international market in the world. We list more securities from more countries than any other equities exchange. We have significant inward investment into UK securities, focused to a large degree at the very liquid end of the market but also into smaller and mid cap companies.
You all know that over the last few months we have been looking to establish a European Growth Market. The need for such a market to provide liquidity, access, visibility for a broad range of European securities hasn't gone away. So, for the future, we are committing to reposition AIM and techMARK as broad international markets. To this end we will be adding a significant marketing spend to extending the reach of these markets and their profile across Europe. We will be seeking listings from other European jurisdictions. We will seek new members. We will seek to recruit nominated advisers from other jurisdictions.
We have already seen significant success with techMARK gaining listings from Israel, Canada and other overseas countries. Our aim is to grow this significantly over the next year to create a European Growth Market based on techMARK. I have asked Tim Ward to take on this role. Tim, as many of you will know, was the prime architect behind techMARK and is ideally positioned to take this forward.
This then is my third theme - the internationalisation of our services.
Improved accountability; better segmentation; more internationalisation: these will drive improvements to the services that you need.
However, together we also must take great care to ensure that some remaining inefficiencies in the UK market are dealt with. I have three particularly in mind.
First, stamp duty. As I met you over the summer this was a subject that was raised again and again. I said it was in my in-tray and was not being forgotten. It hasn't. And I may even be making some progress here. It's important for individual citizens who want to save; for you who serve them; for the Exchange as a commercial entity; and for UK jobs and competitiveness.
Second, dematerialisation. This is not something I have taken any initiative on as yet, but if you as APCIMS were minded to make a concerted push, then my personal commitment and the Exchange's resources would be behind you.
Third is the importance of the Exchange/LCH/Crest plan to introduce a UK central counter party on 26 February 2001. The plans are on schedule.
This is an important development. It will make SETS a more effective trading mechanism and improve the quality and consistency of prices that you rely on. I realise that for some of you, this is yet a further barrier to your direct use of SETS - it is important therefore that we deliver you the retail trading services that I promised earlier. The costs of the Central Counterparty will be borne by the direct users of SETS - they get the most benefit. But remember, the quality and integrity of our price formation process is a benefit to all users of the market.
Some might have expected me to add technology to the list of inefficiencies to be dealt with. But far from it.
We have a strong technology base. We are not in the market to replace wholesale our technology. Don't draw the wrong conclusion from our choice of Xetra in the merger process. Don't be drawn by the siren "gee whizz" noises from OM - and others. We have a modern hardware architecture, shared with telecoms, IT and internet companies. The systems both in terms of overall capacity and intensity of transactions can accommodate many times the present demand. The systems performance in terms of functionality, speed of response and reliability meets the needs of our most demanding customers. And it is capable of being developed to serve markets other than cash equities markets.
I could go on. But suffice it to say that we are able to meet the demands of the market - demands from you, our customers. I believe that the trinity of improved accountability, better segmentation and more internationalisation will strengthen our relationship with you. We are committed to a strong, efficient market that allows you to transact your business in the way that suits you, your businesses and - ultimately most important of all - your clients.
- ends -