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At the beginning of 2004 the Investbx project was completed intending to launch the first regional stock exchange in Britain for many decades. Appropriately enough, it was the West Midlands that had shouldered the burden of validating the demands for and the benefits of the new exchange, since the West Midlands had taken a key role in the industrial revolution some two hundred years before. Investbx was to be a stock exchange for smaller, local companies to have access to capital using local advisers; the protection of investors was paramount and the market had been designed to meet all the FSA’s regulatory requirements.
This time, however, it was the Regional Development Authority in the West Midlands that had sponsored the stock exchange, within the remit of this and similar RDAs to develop and build the economies of their particular regions. The RDA was concerned that the conventional UK stockmarkets, namely the Official List, AIM and Plus Markets, were not able to provide the support needed by small companies in terms of money raising and dealing facilities.
As a result of the public policy issues, the Investbx project was subjected to a very rigorous project development process aimed at proving the demand for the regional stock exchange, the reality of the market failure that it was designed to address and that the support of the project during its development phases represented good value for the public purse.
Investbx, however, appeared to present a challenge to the established order despite its unique focus on SMEs in the West Midlands. As a result it was referred to the European Competition Commission for abuse of state aid. And until a few weeks ago the project was stalled, pending the ruling from Brussels. The conclusion to draw from the ruling is that there is now acceptance that the established UK stockmarkets are failing small companies, although the cause may perhaps be laid at the door of the market participants who forget that the current FTSE 350 companies were small once.
Much has changed in three years it has taken the commission to clear the Investbx project. However access by large numbers of British and European SMEs to equity capital has not improved. This was the original “Market Failure” that gave rise the project in the first place, whilst the focus of the mainstream stock exchanges and trading platforms remains on the comparatively small and rarefied population of highly liquid shares.
Competition Commissioner Neelie Kroes said in the clearance announcement that: “Investbx is a very innovative project, which may be a valuable precedent for other Member States.”
This link will take you to a report on Regional Stock Exchanges by Hembury Associates which laid the foundation for Investbx.
