finance

What’s To Be Done About The Lilliputian London Stock Exchange?

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CITY GRUMP

In the decline of this, that, and the other on our little island, can be found the increasingly desperate case of our London-based equity markets, collectively known as the London Stock Exchange. As a participant in the junior of these, AIM (Alternative Investment Market), right from the start thirty years ago, I and others have watched it come down from some 1,200 companies traded on it to circa 650 now. Behind the scenes, over the last eighteen months, some of us have been attempting to see if this awful state of affairs can be rectified. What I hadn’t realised until the other day is that the whole of the London Stock Exchange, including its main market with FTSE 100 companies and so on, now represents a Lilliputian 3% of its parent company, the London Stock Exchange Group’s (LSEG) revenue.

Step forward, please, Varun Chandra, whom the Spectator magazine describes as “the most important advisor you never heard of”. He is, in fact, our Prime Minister’s business advisor. To further quote the Spectator article: “At the age of 40, he sits as business advisor at the right hand of the Prime Minister, accompanied him to the meeting with Donald Trump at Turnberry, and is credited with playing an invaluable role in the recent trade talks in Washington. Before the general election, he used his innumerable high-level contacts to persuade business that Labour would be a better bet than the Conservatives”. He doesn’t do social media. Here is the email I have sent him this week:

“Dear Mr Chandra,

I know you had a potentially constructive meeting back at the beginning of April with a number of participants in the London Stock Exchange’s AIM Market. I founded the first sizeable fund to invest in AIM (Beacon Investment Trust, 1995), the first AIM VCT (Close Brothers AIM VCT, 1998, now Octopus AIM VCT) and a leading investor in UK smaller quoted companies (Herald Investment Trust, 1994). I keep in touch with what’s going on in the London-listed equity sphere. To this end, a few days ago I received the following, which is an extract from a former, very successful, leading light:

The UK Equity IPO market’s catastrophic demise (£160m of IPOs in H1 2025, less than the Muscat Stock Exchange, outside the top 20 globally, only 3% of European IPOs and 0.3% of the $58.4bn in global IPOs (+18% yoy)) is not due to a lack of incentives, in my opinion. It is far worse, and incentives are not required (no incentives in HK, the US or KSA, the top 3 IPO markets in the world in H1 25).

It is irreversible unless HMG removes the insuperable obstacles put in the path of UK IPO markets: #1 remove EU Solvency II legislation from the UK statutes that forced the exit of pension funds and insurance companies. #2 recalibrate the fiscal treatment of debt vs equities. (This can be kept neutral to HMT as shown by umpteen studies).

I do wish you well.”

This was driven by an observation I made to the above gentleman that (1) The London Stock Exchange now accounts for just 3% of the London Stock Exchange Group’s revenue and (2) in a recent presentation to one of LSEG’s long-standing UK investors, the CEO, David Schwimmer, did not even mention the London Stock Exchange.

Now, I don’t expect you or the Government to push for an end to Solvency II, which effectively prevents insurance companies in particular from investing in equities, as that would eat into their appetite for buying UK Government debt, but you could, of course, get on and level the fiscal playing field of debt vs equities.

The most important thing the two reactions above tell us is that the London equity markets, being the Full List and AIM, are no longer of interest to the London Stock Exchange Group. Yes, I know Emma Reynolds and yourself reacted positively to the proposals you were sent post the April meeting, and yes I know Julia Hoggett at the London Stock Exchange has launched a consultation paper on the future of AIM. I/we also understand that the Chancellor in her Mansion House speech drew attention to the need to remove the regulatory boot on the neck of British businesses, and I know a range of institutional investors have signed up to the Government’s initiative to invest more in alternative investments including AIM, but to take each of these in turn:

  • Warm words and consultation papers are worthless unless material, tangible action takes place. I look to you to make sure this happens in the next few months.
  • With respect to regulation and the London equity markets, please note that Julia Hoggett was a risk manager at the FCA and that the FCA continues to show no appetite whatsoever to reduce the regulatory burden.
  • I am sure you realise, when you do the numbers, it is mathematically impossible for the big pension funds to invest meaningful sums of money in AIM companies. A multi-billion-pound fund cannot physically buy enough stock in a range of, say, £50m market cap companies to make a difference to the performance of the fund.

There was one other aspect in the Chancellor’s Mansion House speech that I want to highlight, which is the launch of an educational campaign next April to champion the benefits of retail investments. This is fundamentally important. Young adults in particular are more than happy to invest in the likes of Bitcoin, but equity investing largely remains a mystery to them. This is because cryptocurrencies do not suffer the burden of regulatory overkill that equities do, and also because no one, least of all the London Stock Exchange, has got out there and launched a sustained marketing campaign on the benefits of retail investing. You and the Government can make this happen. LSEG must not be allowed to give up on its equity markets as it is so obviously currently doing. If it will not now follow through on the Chancellor’s call on regulation and marketing, then I suggest you inform LSEG that the Government will look favourably on the London Stock Exchange being carved out from their Group.”

Perhaps Chandra may see the email. Perhaps he may not. But one thing is for certain, and that is if a rocket or two aren’t fired up the proverbial backsides of the LSEG and the FCA this year, then it will be the end of 300+ years of equity capital raising on the London markets. Rather a shame, don’t you think?

The City Grump has spent some 40 years in the City of London. He started as a stockbroker’s analyst but after some years he decided he was too grumpy to continue with the sell side of things so he moved to the buy side and became a fund manager for the next 20 years, selling his own business in the 1990s. Post the millennium, he found himself in turn chairing a stockbroker, a financial PR company, and an Exchange. He still keeps his hand in, chairing a brace of VCTs and investing personally in start-ups. The City Grump’s publications are available here.